How to Become a Contractor

Learn how to become a contractor in the UK, including how to register, set up your business, find work, and meet legal and tax requirements.

How to Become a Contractor

Becoming a contractor in the UK can be a rewarding step, offering more control over your working life, the opportunity to increase your earnings, and the freedom to choose your projects. Contractors are typically self-employed individuals or limited companies hired by businesses on a temporary or project basis, often working in construction, IT, engineering, healthcare, and other skilled industries.

If you're considering making the move into contracting, this guide will walk you through the process, including legal steps, registration requirements, and practical advice to help you succeed.

1. Decide on Your Structure: Sole Trader or Limited Company

One of the first steps is deciding how you will operate. Most contractors choose between working as a sole trader or setting up a limited company.

Sole Trader

This is the simplest option. You run the business as an individual and are personally responsible for all liabilities.

  • Easier to set up and manage

  • Fewer reporting requirements

  • Profits are taxed as personal income

Limited Company

A more tax-efficient route for many contractors, but with more admin.

  • The company is a separate legal entity

  • You are paid through a mix of salary and dividends

  • Corporation tax applies to company profits

  • More professional appearance to clients

If you are unsure, it’s worth speaking to an accountant to determine which route suits your situation and earning potential.

2. Register with HMRC

Once you’ve chosen your business structure, you need to register it:

  • Sole traders must register for Self Assessment with HMRC

  • Limited companies must register with Companies House and HMRC for Corporation Tax

You will receive a Unique Taxpayer Reference (UTR), which you’ll use when filing tax returns.

3. Get the Right Qualifications and Experience

Contracting often involves specialised skills, so having recognised qualifications, certifications, or trade body memberships will improve your credibility and job prospects. Depending on your industry, you may also need:

  • CSCS card (Construction)

  • Gas Safe registration (Gas engineers)

  • CQC registration (Healthcare)

  • Accreditations such as ISO, CHAS, or SafeContractor

Keep your training up to date and maintain a strong portfolio or CV that showcases your expertise.

4. Open a Business Bank Account

If you’re setting up as a limited company, a business bank account is a legal requirement. Even as a sole trader, keeping your business and personal finances separate will make managing your taxes and expenses much easier.

Compare accounts from high street banks and digital providers to find the best fit for your needs.

5. Arrange Business Insurance

Clients will often require you to have certain types of insurance in place before awarding you a contract. Common policies for contractors include:

  • Public liability insurance

  • Professional indemnity insurance

  • Employers’ liability insurance (if you hire staff)

  • Tool or equipment insurance

  • Contractor all risks insurance (for construction trades)

Prices vary depending on the industry and level of risk, but insurance is essential for protecting both you and your clients.

6. Understand Tax and Legal Responsibilities

As a contractor, you are responsible for managing your own tax and legal obligations. This includes:

  • Filing Self Assessment or Corporation Tax returns

  • Paying Income Tax, National Insurance, or Corporation Tax

  • Registering for VAT if your turnover exceeds the threshold (£90,000 as of 2024)

  • Staying compliant with IR35 legislation if you work through a limited company

IR35 is especially important for contractors working through an intermediary for one main client. It affects whether you pay tax as an employee or as a contractor. Seek expert advice if your work involves long-term contracts.

7. Find Work and Build Your Client Base

There are many ways to find contracting work:

  • Job boards such as Indeed, CV-Library, or Reed

  • Industry-specific recruitment agencies

  • Networking events and trade shows

  • LinkedIn and online portfolios

  • Freelance platforms like PeoplePerHour, Upwork, or Bark (depending on industry)

To stand out, build a professional presence online. A simple website showcasing your services, testimonials, and past projects can help potential clients trust your capabilities.

8. Set Your Rates and Terms

Decide how much to charge for your services. Consider:

  • Your skills and experience

  • Market rates in your industry

  • Costs including tax, insurance, travel, and admin

  • Whether you are charging by the hour, day, or per project

Be clear on your payment terms (e.g. 14 or 30 days), and consider using contracts or terms of service to protect both parties. Templates are widely available, or you can have a solicitor review your documents for peace of mind.

9. Keep Good Records

From invoices and expenses to mileage and receipts, keeping accurate financial records will make tax season far less stressful. You can use:

  • Spreadsheets

  • Accounting software (such as QuickBooks, Xero, or FreeAgent)

  • A bookkeeper or accountant

Keeping on top of your paperwork also helps if HMRC decides to audit your accounts or check your IR35 status.

Final Thoughts

Becoming a contractor involves more than just leaving your current job and picking up freelance work. It requires planning, compliance, and a willingness to manage your own business affairs. But for many, the flexibility and potential rewards make it well worth the effort.

With the right setup, support, and strategy, you can build a successful contracting career on your own terms.