Types of freelancer

However you operate as a freelancer, you will be required to pay tax and national insurance on your earnings.

Types of freelancer
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You can consider yourself a freelancer because you work a number of contracts over a year and don’t have a permanent employer, but as far as HMRC (His Majesty’s Revenue and Customs) is concerned, there are different types of freelancer for Income Tax and National Insurance purposes:

  • Sole trader
  • PAYE fixed term contract
  • A mix of sole trader and PAYE
  • Limited Company

Whichever way you operate, you will be required to pay tax and National Insurance on your earnings.

Sole trader

As a sole trader you work for yourself, invoice for your services and complete a self-assessment tax return at the end of the financial year. You will be paid inclusive of income tax and national insurance. You are responsible for registering yourself as self-employed with HMRC. You do this on the Government Gateway. Once you are registered as self-employed HMRC will send you a 10-digit Unique Taxpayer Reference (UTR) number. 

PAYE fixed term contract

If you work on a PAYE fixed term contract then your employer will deduct income tax and national insurance at source and pay you through their payroll on a specific date, usually monthly. There is an exception to this known as the seven-day rule for short contracts in the entertainment industry.

A mix of sole trader and PAYE fixed term contract

If your work splits between sole trader and PAYE fixed term contracts then, like a sole trader you will need to complete a tax return annually, however, you may have paid tax and NI up front (via your PAYE work) but you will owe tax and NI from your sole trader work. Your tax return will calculate this for you.

Limited company

If you are considered self-employed an alternative to sole trader is to run your freelance operations through your own limited company. This is a more complex arrangement which requires professional advice and support from an accountant. It may be something to consider as your career develops. There are advantages (it limits your liability) and disadvantages (additional cost and complexity). It therefore isn’t right for everyone.

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