Difference between contractor, freelancer and consultant

A lot of contractors starting out or who have just decided to change their work style are sometimes unsure what to call themselves – we hope this short article clears a little of the fog surrounding the various terms.

These three terms are often used interchangeably, but in fact - to be pedantic - they are quite different! And these differences become particularly noticeable when you start talking about the financial side of things – as in, what people will expect to pay for each one and how they will expect to engage you. The short answer is that the consultant’s role is evaluate a client's needs and provide expert advice and opinion on what needs to be done - whilst the contractor or freelancer role is generally to actually perform the work. Of the two latter ones, these are usually differentiated by the engagement model used. Let’s look briefly at each one individually:

Consultant

A consultant is generally referred to as an ‘experienced professional’ and will provide expert knowledge in return for a fee. They tend to work in an advisory capacity only and are usually not accountable for the outcome of a consulting exercise. Some consultants have brought dramatic shifts in management thinking and improvements in the performance of organisations. Consultants can command a very high fee due to their years of experience and are seen as being some of the most knowledgeable people in their chosen field.

Contractor

A contractor is also an experienced professional, but one who provides a specialist service in return for a fee. Unlike a consultant, a contractor will actually carry out physical work, although they may also advise on what that should be beforehand. Contractors are used by organisations that wish to acquire a given skill set for a period of time, but which do not want to employ someone permanently. As such, a ‘contract’ is usually full time but for a set period only – which can be extended if both parties agree.

Freelancer

The terms freelancer and contractor are often interchanged, but in general, they are two different things. Whilst a contractor will work full time for one client, or ‘employer’ on client site, a freelancer usually has their own premises (or works from home) and has multiple clients. Freelancers will work on a hourly basis and could have many different pieces of work ongoing for a number of different clients. Freelancers generally command similar rates of pay to contractors, but will only earn the same as a contractor if they bring in enough business across all of their clients, to enable them to work a similar number of hours as a full time contractor does.

In terms of how each is perceived by potential clients, and consequently how much each can charge, contractors and freelancers are seen as ‘rank and file’ - one of the workforce so to speak – while consultants can come in at an executive level, sometimes with no accountability.

So which one would you rather be?

Well for many roles it really makes no difference what you call yourself, you’ll be hired on your skills and experience and the contract role is predetermined by what the client demands. Something worth considering is that it may be slightly harder to win business as a consultant than it is to win business as a freelancer or contractor - as the requirement for your skills is often far less clearly defined, and therefore the cost much harder to justify.

Operating as a freelancer or contractor

Whichever route you opt for, the only skill set you need is the ability to do the job you are contracted to do – exactly as would be the case if you were going for a job in permanent employment. The only difference being that you do it as a contractor, working for one client full time, or as a freelancer, working a smaller number of hours per week (or on a project by project basis) for a number of clients.

Operating as a consultant

Read the latest books and follow your industry’s thought leaders online. Start to think about the theories and conceptual approaches, not just execution. Don’t get bogged down by the nitty-gritty execution details of your freelancing or contracting area and instead strive to understand the theoretical and conceptual underpinnings of why certain things work while others don’t. For example, as a web developer, that might mean to reading up on some human psychology, to understand why people approach and react to websites in different ways.

Remember anyone can make their CV or website look the part – but be sure you have the ability to provide true consultancy services before selling yourself as such, or you could get found out very quickly!

Merging the two

There is definitely an option to ‘cross between worlds’ in order to make yourself suitable for more types of work. As a contractor, it’s also a good way to move gradually into the consultancy environment, so let’s look at that approach first.

When you are brought in to a full time contract in a specific role, or when you are asked to carry out a specific piece of work as a freelancer, you may find that the people who have employed your services do not have a clear idea of exactly what it is they need you to do – or they think they do, but you can immediately see how it could be done better! As such, you could find yourself providing the type of advice up front which would traditionally fall more into the consultant’s realm. And whilst you might not get paid for the consultancy side of things, this provides great experience and will help you secure a consultancy job (if that’s what you want to do).

We hope you found this page useful, if you have any questions about contracting, going limited or tax please contact us on 01442 275789 or email sophie.lewis@sjdaccountancy.com , we will be delighted to help.

SJD Accountancy

SJD Accountancy are the UK's largest specialist provider of fixed fee, Limited company accountancy services to contractors; we've been acting for contractors across the UK since 1992 and have more than 15,000 clients.

We are the only national specialist firm of contractor accountants with offices nationwide. SJD Accountancy has more qualified staff than any other firm in our market with qualifications from the following major tax and accountancy bodies - ATT, AAT, CTA, ACCA, CA, ACA and FCCA.

  • Unlimited face to face meetings. This is a unique service only SJD Accountancy offers - unlimited face to face meetings across the UK - tax is complicated and sometimes only a meeting will do.
  • UK's Largest contractor accountants with more qualified staff. No call centres, no outsourcing, no automated call handling. Simply telephone, email or meet your own dedicated accountant* face to face.
  • Money back service guarantee. All your telephone calls and emails will be answered the same day or we will make a full refund of that months fee.
  • Outstanding reputation. We have won more awards for customer service and accountancy excellence than any other firm in our market, including: Best Accountant for Contractors, Accountant of the Year and Best Professional Service Team to name just a few.
  • All inclusive low cost fixed fee accountancy package which includes completion of accounts*, payroll bureau, dividends and corporation tax computations, personal taxation, free bookkeeping software, your own dedicated accountant* and all company returns for a fixed fee of £120 plus VAT per month.

If you have any questions about contracting or would like any further advice please call our new client services helpdesk on 01442 275789 or email: janice@sjdaccountancy.com. Our new client services helpdesk is open Monday to Friday (8am to 6pm).

Appoint SJD Accountancy and never worry about your tax or accountancy affairs again.

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*If you would like us to complete your company year end accounts we simply ask that you have been a client of SJD for one year or have made 12 monthly payments. All accountants are part or fully qualified.