Question submission date: July 2022

Full Question: “I’m considering working for myself, but am I classed as a sole trader, freelancer, a contractor? How does this impact how I work?”

There are so many different terms used when people start working for themselves but by and large they are just different words for the same thing– freelancers, consultants, contractors, interim managers, self-employed, sole traders… some people just feel one description suits them better than another.

More than often, it is based on the industry they are in, for example, designers tend to prefer the term freelancer, while builders tend to use contractor. Effectively, they are all words for being self-employed, ultimately its your turnover, trade and needs that decides what terminology best suits how you work.

If you’re a sole trader, you and your business are considered as one combined financial and legal entity – you won’t receive holiday or sick pay but you are completely in control of the work you choose to do.

Where there IS a real difference is between being a sole trader, a partnership or a limited company. If you set up a partnership, you and your chosen partner (or partners) are equally responsible for your business and share the profits.

A limited company is the most popular choice for many independent professional as you are legally a separate entity from the people that run it and, exactly as it says, limits your personal risk. Setting up a limited company involves a bit more paperwork and people tend not to do this until they are earning a certain amount, or have clients who only want to work with other limited companies.

Most people who are just setting up do so as a sole trader in the beginning, it’s the simplest way and you can always change your mind once you’re more established and making bigger profits.

Don’t be put off by all the different terminology, it really is very simple to become self-employed There are advantages and disadvantages for sole traders, partnerships and limited companies so best thing you can do is speak to your accountant who’ll be able to advise you as to what would be the most advantageous for you and your business or for more depth information take a look at our comprehensive article here.

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Thanks for reading my answer, I hope you found it useful.

Ryan Dempsey