Freelancer & Contractor Guide
A comprehensive guide for UK freelancers, contractors and consultants covering business structures, IR35, tax, National Insurance, contracts, invoicing, expenses, insurance, bookkeeping, VAT, pensions and choosing an accountant.
Freelancer & contractor guide
Freelancer & Contractor Guide UK 2026
A comprehensive guide for UK freelancers, contractors and consultants covering business structures, IR35, tax, National Insurance, contracts, invoicing, expenses, insurance, bookkeeping, VAT, pensions and choosing an accountant.
1. Freelancer or contractor: what is the difference?
ADVERTISE HEREPromote your business to Accounting Hire visitors.Ask about advertising opportunities →A freelancer often sells skills or services to multiple clients and may work on projects. A contractor commonly works under a defined engagement for a client, sometimes through a limited company. In practice the terms overlap. What matters for tax and employment law is the actual relationship and how the engagement is structured.
2. Choose the right structure
| Consideration | Sole trader | Limited company |
|---|---|---|
| Setup | Generally quick and comparatively simple. | Requires Companies House incorporation and ongoing company administration. |
| Legal identity | You and the business are generally the same legal person. | The company is a separate legal entity. |
| Tax | Profit generally feeds into your personal tax position. | Company profits can be subject to Corporation Tax; personal extraction has separate consequences. |
| IR35 | IR35 does not apply in the same way because there is no intermediary company. | Off-payroll working rules can be relevant to company contractors. |
| Administration | Generally lighter. | Accounts, confirmation statement, company records and payroll/dividend administration may apply. |
3. IR35 and off-payroll working
IR35 is designed to address situations where a contractor works through an intermediary but, if that intermediary did not exist, the relationship would look substantially like employment. The rules can affect tax and National Insurance treatment. The party responsible for determining status can vary depending on the client and public/private-sector circumstances. Do not treat an engagement as outside IR35 simply because a contract uses the word “contractor”.
Practical IR35 questions
- Who controls how, when and where the work is performed?
- Can the contractor provide a substitute?
- Is there a genuine obligation to provide and accept work?
- Who carries financial risk?
- Does the contractor operate as an independent business?
- What equipment and systems are used?
- How integrated is the contractor into the client’s organisation?
4. Setting your day rate or hourly rate
Do not calculate a commercial rate simply by dividing a target salary by 52 weeks. Freelancers and contractors have non-billable time, holidays, training, sales activity, administration, insurance, software, pension costs and periods between assignments.
| Rate calculation | Include |
|---|---|
| Income target | Desired personal income or business profit. |
| Business overhead | Software, insurance, accountancy, equipment, professional subscriptions. |
| Non-billable time | Sales, admin, training, holidays and gaps between contracts. |
| Tax reserve | Money retained for personal/company tax obligations. |
| Risk premium | Contract uncertainty, late payment and business risk where appropriate. |
Use the Freelancer Hourly Rate Calculator to model a commercial rate rather than relying on a salary-equivalent figure.
5. Contracts and statements of work
A written contract should make the commercial relationship clear. Important areas include scope, deliverables, milestones, fees, payment terms, expenses, intellectual property, confidentiality, liability, termination, substitution where relevant, data protection and dispute arrangements.
6. Invoicing and getting paid
- Agree payment terms before work begins.
- Invoice promptly against clear milestones.
- Include the legal name and required invoice details.
- State bank details and payment terms consistently.
- Track overdue invoices.
- Consider deposits or staged billing for appropriate projects.
7. Business expenses
Keep evidence for legitimate business expenditure and separate business and personal costs. Common freelancer expenses can include professional subscriptions, software, business insurance, equipment, qualifying travel, accountancy and certain home-working costs. Mixed-use costs require careful treatment.
8. VAT
Monitor taxable turnover against the current VAT registration rules. VAT registration can affect pricing, cash flow and administration. Contractors working with VAT-registered clients may have different commercial considerations from consumer-facing freelancers, but registration should be assessed against the actual VAT rules rather than assumed to be beneficial or harmful.
9. Bookkeeping routine
A simple monthly routine can prevent year-end chaos: reconcile the bank, record sales, capture receipts, review aged invoices, set aside tax, check VAT if registered and review profitability. If using an accountant, agree who is responsible for each step.
10. Insurance and professional risk
Depending on the work, consider professional indemnity, public liability, employer’s liability where legally required, cyber cover and equipment insurance. Contract requirements can also make insurance necessary even where legislation does not.
11. Pension and long-term planning
Freelancers do not automatically receive an employer pension contribution simply because they are self-employed. Build pension saving into your commercial rate and cash-flow planning. Limited-company contractors should consider pension contributions as part of wider company and personal planning with appropriate professional advice.
12. When should a freelancer use an accountant?
An accountant can become particularly useful when turnover grows, VAT applies, you work through a limited company, IR35 becomes relevant, you employ people, have multiple income streams or want management information. Compare accountants on the actual work included, not just the monthly headline fee.