The short answer
For a UK professional services firm of 10 to 50 people, a freelancer suits a bounded job in one discipline with a partner free to direct it. An agency suits work that needs several skills at once. The label settles nothing: Companies House publishes the average number of employees behind any agency trading as a limited company, so check the headcount before you compare the prices.
Key takeaways
- Freelancer or agency is a description, not a fact. Nothing stops one person trading as an agency, and nothing requires them to say so.
- Section 411 of the Companies Act 2006 requires the average number of persons employed to be disclosed in the notes to the accounts, and the notes are filed.
- The accounts type is a signal on its own. Micro-entity accounts mean the company met two of three conditions: turnover under £1 million, a balance sheet under £500,000, or ten or fewer employees.
- Most practices this size are small clients for the off-payroll rules, which leaves employment status with the freelancer.
- A supplier who is not registered for VAT is 20 per cent cheaper for a firm that cannot recover it, and no cheaper for one that can.
A managing partner at a UK accountancy practice puts the same brief to two suppliers. One calls itself a freelance marketing consultant and quotes £1,800 a month. The other calls itself a digital agency and quotes £3,600. The gap reads like the price of a team.
Companies House settles it in about a minute. If the agency trades as a limited company, its most recent filed balance sheet carries a note the Companies Act 2006 requires: the average number of persons employed during the year. Sometimes that number is fourteen. On accounts filed under the micro-entity regime it is often one, and where it is, both quotes are for the same thing.
None of which makes the freelancer the right answer. It makes the comparison a real one. The word on the proposal is a marketing decision. The headcount is a filing.
Check how many people are actually there
The average number of employees is a required note in a company's accounts, and the notes are filed. Section 411 of the Companies Act 2006 requires the notes to disclose the average number of persons employed in the financial year. A company in the small companies regime discloses that figure and nothing else. Under the micro-entity regime it sits at the foot of the balance sheet, and the balance sheet is what gets delivered to the registrar.
The officers list
Companies House company search, free
How many people are legally accountable. A single director is not a fault, it is a ceiling.
The accounts type in the filing history
Marked on each filing as micro-entity, small or full
A micro-entity met two of: turnover under £1 million, a balance sheet under £500,000, ten or fewer employees.
The employee note in the latest accounts
In the notes, or at the foot of a micro-entity balance sheet
The answer. Working directors are commonly inside that figure, so a 1 or a 2 means the person quoting is the person delivering.
No company record at all
The search returns nothing under the trading name
A sole trader. A fact about liability, not competence, but there is no company between you and them and no accounts to read.
It is the same discipline as the four checks you can run on a supplier you already have, applied before you sign. Records beat answers, because nobody edits them for the person asking.
What a freelancer is genuinely better at
A freelancer wins where the job is bounded to one discipline and somebody inside the firm is already directing it. One discipline, one deadline, one person to chase.
Where that describes the work, account management is overhead you pay for and do not use. Two situations fit it in a practice of 10 to 50 people. A defined project with a finish line, such as a site rebuild. Or a standing task somebody already knows how to direct, where the constraint is hands rather than judgement. Either way the brief does more work than the choice does, and what a brief has to contain applies unchanged when the supplier is one person.
Saying so costs us introductions, and it is right more often than the market publishing on this question suggests. Every result on the first page is written by an agency, a freelancer, a directory or a marketplace taking a percentage of one.
Two money questions the comparison pages skip
A supplier's VAT registration changes your cost only if your firm cannot recover the VAT. A freelancer billing under the £90,000 registration threshold may not be registered at all. To an accountancy practice or a recruitment agency that is worth nothing: those firms make taxable supplies and recover the VAT. To a firm making exempt supplies it is worth a fifth of the fee.
| Your firm's own supplies | VAT on a supplier fee | Supplier not registered | Supplier registered |
|---|---|---|---|
| Taxable: accountancy, tax advisory, recruitment, legal | Recovered on the next return | £24,000 a year | £24,000 a year |
| Exempt: insurance brokerage, much financial intermediation | Not recoverable above the de minimis limits | £24,000 a year | £28,800 a year |
The second question is employment status, and at this size it is not yours to answer. Since April 2021 medium and large private sector clients have had to determine the status of anyone engaged through their own limited company. A client is medium or large only where it meets two or more size conditions, one of which is more than 50 employees. Below that, His Majesty's Revenue and Customs is explicit that status remains the responsibility of the worker's own intermediary. A traditional partnership is tested on turnover alone.
You must still confirm your size if asked, and the exemption follows your filed accounts rather than your intentions, so a practice growing through the thresholds inherits an obligation nobody carries today.
Before you compare the two quotes
Find out how big the job actually is.
Tell us what has to be done and by when. Free to your firm. The agency pays us, and only if the relationship works.
Get a recommendationWhat to write down when you hire one person
A single-person supplier has no cover, and the contract is the only place to deal with that. An agency's answer to illness or resignation is another person. A freelancer's answer is a delay, and there is nothing wrong with that provided the firm has agreed how long it can absorb. What fails is discovering the answer during a filing season.
Four things belong in writing, and none is an unusual ask.
- Who does the work if this person cannot, and how fast you are told
- Where the assets live: analytics, the domain registrar, the content management system and the code repository, each in the firm's own account
- A written assignment of copyright, because the first owner of a work is its author unless it was made by an employee
- What happens to work in progress if either side gives notice
None of it is specific to freelancers. It is the same list the wider guide to choosing a digital agency holds an agency to. The difference with one person is that there is nobody else to ask.
When you should hire neither yet
Two conditions make this premature, and both are ordinary in a partnership. The first is that nobody has time to direct the work. A freelancer with no owner inside the firm produces what they were asked for, which is rarely what the practice needed. An agency supplies account management at a price, and even then it cannot supply judgement about your market.
The second is that the budget stretches to a fraction of one person. Below roughly £1,000 a month you are buying a few hours, and a few hours of anybody holds nothing together. That money does more as one defined project with a finish line.
We match firms with agencies, so a page that says hire the freelancer works against us. What we assess before recommending anyone is on our page for professional services firms, including where we decline to introduce anyone at all.
Frequently asked questions
What managing partners ask us about freelancers.
Is a freelancer cheaper than an agency?
Usually on the headline rate, and by more than it looks if your firm cannot recover VAT. A freelancer billing under £90,000 a year may not be registered, which is worth 20 per cent to an insurance brokerage and nothing to an accountancy practice.
How do I know whether a digital agency is really one person?
Search the company at Companies House and read the note at the foot of the most recent balance sheet. Section 411 of the Companies Act 2006 requires the average number of persons employed during the year to be disclosed there. A sole trader will have no entry at all.
Do the off-payroll working rules apply if we hire a freelancer?
Not to most firms of this size. The rules apply to medium and large clients only, and a client is medium or large where it meets two or more size conditions, one of which is more than 50 employees. Below that, status stays the responsibility of the worker's own intermediary.
What happens if a freelancer is ill in the middle of a project?
Whatever the contract says, which in most freelance contracts is nothing at all. That is the real difference between one person and a bench, and it is manageable rather than disqualifying. Settle it before you sign.
Can we use a freelancer and an agency at the same time?
It works in one order. The firm or the agency owns the plan and the sign-off, and the freelancer takes a defined piece of it. It fails in the other, where each supplier assumes the other holds the strategy.
Sources and useful reading
- Companies Act 2006, section 411, employee numbers.
- Life of a company, part 1: accounts, the size thresholds.
- Late filing penalties, the nine month deadline.
- Off-payroll working rules for clients, the size conditions.
- VAT registration: when to register, the £90,000 threshold.
- Partial exemption, VAT notice 706, the de minimis limits.
- Copyright, Designs and Patents Act 1988, section 11, first ownership.
This article is commercial decision support, not legal, employment, tax or regulatory advice. The worked figures are illustrative and use published rates and thresholds current at the date above.