The terms ‘contractor’ and ‘freelancer’ are often used interchangeably.
Both describe independent workers who provide services to clients – usually temporarily – but there are some important differences when it comes to how they operate, especially in areas such as tax, business structure, and hiring practices.
Just as the term ‘self-employed’ is used to describe almost anyone who doesn’t have a traditional 9-5 job, the word ‘freelancer’ has become fairly ubiquitous.
However, in the IT contracting world, you’ll rarely hear professionals refer to themselves this way.
Here are some of the key traits of each type of worker in 2025.
Contractor
Contractors work on fixed-term contracts for end-clients (hence the term ‘contractor’).
They are typically professional workers who possess technical skills in areas such as IT, cybersecurity, data science, and engineering.
Typically, these contracts are delivered either onsite or remotely during standard working hours.
Contractors are often hired to fill temporary specialist roles or to complete project-based work.
Around 80% of contractors work through recruitment agencies, although direct-to-client models make up a fair percentage, particularly through LinkedIn and niche platforms.
Due to IR35 and off-payroll working rules, very few clients allow contractors to operate as sole traders. Using a limited or umbrella structure helps clients reduce tax risk.
Contractors don’t usually ‘bid’ for work but are often competing with other specialists for roles listed by agents or job boards.
Limited company contractors do not receive any employee benefits, such as holiday pay, sick pay, or pensions.
Contractors typically invoice their agency or client directly.
Tax-wise, limited company contractors pay PAYE and Class 1 National Insurance Contributions (NICs) on their salary, and dividend tax via self-assessment.
Umbrella contractors are taxed like employees, with all taxes and NICs deducted at source.
In-demand contractors often earn £400-£700 per day, depending on their skills and location.
Freelancer
Freelancers often work with multiple clients simultaneously and are typically paid by the job, by the hour, or by the day.
This model is standard in the creative and digital sectors, including writers, designers, marketers, video editors, and developers.
Work is typically remote-first, with employees working from home or coworking spaces. Long-term on-site engagements are rarer.
Some jobs are awarded through bidding platforms like YunoJuno, Upwork, and PeoplePerHour.
Freelancers source clients directly, often through networking, personal websites, or referrals – they rarely use recruitment agencies.
They may work as sole traders, via a limited company, or in some cases, partnerships.
Unlike contractors, they are not required to use intermediaries.
They also don’t receive any employment perks from clients – they are fully independent.
Paid directly by their clients, usually upon delivery of work.
Sole traders pay Income Tax, Class 2 and Class 4 NICs, via the self-assessment process.
Limited company freelancers are taxed in the same way as limited company contractors – salary plus dividends, taxed via PAYE and self-assessment.
Both contractors and freelancers need to know how to navigate IR35.
Freelancer income can vary widely, ranging from £100 per day to £ 1,000 or more, depending on skill, reputation, and niche.
Key differences at a glance
Feature
Contractor
Freelancer
Structure
Limited company or umbrella
Sole trader or limited company
How hired
Mostly via agencies
Direct or via online platforms
Industry focus
IT, engineering, and technical roles
Creative, digital, marketing
Work style
Full-time contracts, fixed term
Project-based, remote, part-time or flexible
Tax model
PAYE + dividends or umbrella PAYE
Self-assessment or PAYE + dividends
Use of agencies
Common
Rare
IR35 concerns
High – structure matters
Freelancers aren’t automatically exempt. It depends on the nature of the engagement, not the label.
Final thoughts
While there is overlap, most IT and technical professionals identify as contractors, especially when working through limited companies or umbrella companies.
Freelancers, meanwhile, are more prevalent in creative and digital industries, and often operate as sole traders.
