Getting Started as a UK Contractor

You're skilled at your trade. You know how to do the work. But starting a contracting business in the UK involves more than just being good with your hands. There's paperwork, regulations, licences, insurance, and tax considerations that can feel overwhelming when you're just trying to get started.

This guide cuts through the noise. We'll cover exactly what you need to do - no waffle, no legal jargon - just the practical steps to get your contracting business set up properly from day one.

Step 1: Choose Your Legal Structure

Before you do anything else, you need to decide how you're operating. In the UK, you have two main options: sole trader or limited company. This decision affects your tax, liability, and paperwork - so it matters.

Sole Trader

What it is: You are the business. Simple as that. No legal separation between you and your trading activity.

Pros:

• Simple to set up (register with HMRC, done)
• Minimal paperwork and admin
• Keep all profits after tax
• Easier accounting - just need to track income and expenses

Cons:

• Unlimited personal liability (your house is at risk if something goes wrong)
• Pay income tax on all profits (20-45%)
• Harder to get business loans or investment
• Less professional image for some clients

Best for: Starting out, testing the waters, keeping things simple. Most tradespeople begin as sole traders.

Limited Company

What it is: A separate legal entity. You own shares in the company and typically act as director. The company contracts with customers, not you personally.

Pros:

• Limited liability (only company assets at risk, not your personal property)
• More tax-efficient once you're earning over £50k/year
• More professional image
• Easier to bring on partners or investors

Cons:

• More complex to set up
• More paperwork (annual accounts, Companies House filings)
• Separate business bank account required
• More expensive accountancy fees

Best for: Established contractors earning good money, anyone doing high-risk work, or those planning to grow a team.

Step 2: Register for Tax

Once you've chosen your structure, you need to tell HMRC you're in business. This isn't optional - you can be fined if you don't register on time.

Sole Traders: Self-Assessment

Register for Self-Assessment with HMRC within 3 months of starting trading (or by 5 October following the tax year you started, whichever is later).

How to register:

1. Go to gov.uk/register-for-self-assessment
2. You'll need your National Insurance number
3. Choose "self-employed" as your reason for registering
4. HMRC will send you a Unique Taxpayer Reference (UTR) within 10 days

Important deadlines:

• Submit your Self-Assessment tax return by 31 January each year
• Pay any tax owed by 31 January (and potentially a payment on account by 31 July)

Limited Companies: Corporation Tax

When you register your limited company with Companies House, HMRC is automatically notified. You'll receive a Corporation Tax UTR within a few weeks.

Corporation Tax deadlines:

• Pay Corporation Tax 9 months and 1 day after your accounting year ends
• File your Company Tax Return 12 months after your accounting year ends

VAT Registration

You must register for VAT if your turnover exceeds £90,000 in any 12-month period (2025/26 threshold). You can voluntarily register before that if you want to reclaim VAT on business purchases.

Step 3: Get the Right Insurance

Insurance isn't optional if you're serious about contracting. One claim could bankrupt your business without proper cover. Here's what you actually need:

Public Liability Insurance (Essential)

What it covers: Injury to members of the public or damage to their property caused by your work.

Example: You're rewiring a house, accidentally start a fire. Public liability covers the property damage and any injuries.

Cost: £100-300/year for £1-5 million cover Required? Not legally, but most clients won't hire you without it. Consider it essential.

Employers' Liability Insurance (Legally Required if You Have Employees)

What it covers: Injuries or illness suffered by employees as a result of their work.

Required? Yes, by law, if you employ anyone (even family members or subcontractors in some cases). Minimum £5 million cover. Cost: £100-400/year depending on risk level of work

Professional Indemnity Insurance (Trade-Specific)

What it covers: Claims of professional negligence, errors, or poor advice.

Example: You design a heating system that doesn't work properly. Client sues for cost of replacement.

Required? Not always, but essential for trades offering design work or advice (architects, engineers, heating engineers, electricians). Cost: £300-1,000/year

Tools & Equipment Insurance

What it covers: Theft or damage to your tools and equipment.

Worth it? Absolutely. Van break-ins are common. Replacing £5,000 worth of tools out of pocket could sink a new business. Cost: £200-500/year depending on value of tools

Step 4: Trade-Specific Licences & Certifications

Depending on your trade, you may need specific qualifications, licences, or registrations. Here's what's required for common trades:

Electricians

• Required: Part P Building Regulations compliance (for domestic work)
• Scheme membership: NICEIC, NAPIT, ELECSA, or Stroma (to self-certify work)
• Qualifications: NVQ Level 3, AM2 assessment, 18th Edition Wiring Regulations
• Cost: £400-600/year for scheme membership

Gas Engineers

• Required: Gas Safe Register (legally required to work on gas appliances)
• Qualifications: ACS (Accredited Certification Scheme) certificates for each type of work
• Cost: £150-300/year registration + ACS renewal every 5 years (£100-300 per certificate)

Plumbers

• Required: Water Supply (Water Fittings) Regulations compliance
• Optional but valuable: CIPHE (Chartered Institute of Plumbing and Heating Engineering) membership
• Cost: No legal registration, but professional membership £100-200/year

Builders

• Required: None specifically (but subcontractors may need their own certifications)
• Valuable: FMB (Federation of Master Builders) or NFB (National Federation of Builders) membership
• Cost: £300-800/year for trade body membership

Roofers

• Required: None legally
• Valuable: NFRC (National Federation of Roofing Contractors) membership, TrustMark scheme
• Cost: £250-500/year for membership

Step 5: Set Up a Business Bank Account

You need to separate business and personal finances. Not just for good bookkeeping - HMRC expects it, and mixing finances makes tax returns nightmarish.

Sole Traders

Not legally required to have a separate business account, but strongly recommended. Many sole traders use a second personal account to keep things separate without paying business banking fees.

Limited Companies

Legally required to have a business bank account. The company is a separate entity - you cannot use personal accounts.

What to look for in a business account:

• Low or no monthly fees (many offer 12-24 months free for new businesses)
• Online banking and mobile app
• Integration with accounting software
• Decent customer service (you'll need it when payments go wrong)

Popular options for contractors:

• Starling Bank - Free business account, excellent mobile app
• Tide - Popular with sole traders, integrates with accounting software
• NatWest/RBS - Traditional banks, good if you want in-person service
• Barclays - Free banking for 2 years, established reputation

Step 6: Essential Business Setup Tasks

Estimated Setup Costs

Here's a realistic budget for starting a UK contracting business (sole trader, single person):

Note: This doesn't include the cost of tools (which you likely already own) or a van purchase. If you're starting completely from scratch, budget an additional £3,000-10,000 for tools and £5,000-15,000 for a van.

Common Mistakes to Avoid

1. Not Registering for Tax on Time

Automatic penalties. Register within 3 months of starting to trade. Set a calendar reminder.

2. Skipping Insurance to Save Money

One claim without insurance could cost you £50,000+. The £200/year for public liability is the cheapest protection you'll ever buy.

3. Mixing Personal and Business Finances

Makes tax returns painful, hides your true profitability, and looks unprofessional to clients. Separate bank accounts from day one.

4. Working Without Proper Certifications

Gas Safe, Part P, scheme memberships - these aren't suggestions. Working without required certifications is illegal and invalidates your insurance.

5. No Record-Keeping System

Come tax time, you'll regret not keeping receipts and tracking income. Set up a system NOW - even a simple spreadsheet beats scrambling through shoeboxes in January.

What's Next?

You're legally set up. You've got insurance, registrations, and the paperwork sorted. But setting up the business is just step one. The real challenge is making it profitable.

That's where Part 2 of this series comes in: How to Price Your Work (Without Leaving Money on the Table). We'll cover how to calculate true costs, set profitable day rates, quote accurately, and avoid the pricing mistakes that kill contractor businesses.