Becoming self-employed gives you the freedom about when, for who, and how much you work. Setting out on your own is an exciting opportunity, but how do you get started? 

This article will be your guide to how to become a self-employed contractor by looking at the following steps:

  • Set up your business
  • Notify HMRC of your tax status
  • Organise your finances
  • Research insurance
  • Get up to speed on regulations
  • Finding work

Set up your business

To take the first step to set up the business, you need to choose your structure. For example, will you be a sole trader, a limited company?

A sole trader is a simple to manage structure, you have complete control over the profits you make, but you will be responsible for any debt you have. However, many professions require that contractors operate through a limited company (it’s more likely that you will need to incorporate a limited company if you offer professional services, for example, accountancy, consulting, design or engineering)

A limited company can give off a more professional image and give you limited liability for any debt. However, a lot of administrative work goes into running the business and different tax obligations you’ll need to manage, such as Corporation Tax and potentially VAT.

Next, choose your business name. If you’re going with a limited company, you’ll need to register it with Companies House

Notify HMRC of your tax status

If you choose to be a sole trader, you’ll need to register as self-employed with HMRC as you’ll be managing your taxes. After registering, you’ll receive your Unique Tax Reference (UTR), and you’ll need this information for submitting your income tax return annually. 

If you have chosen to trade as a limited company, you’ll need to register with HMRC as an employer, not self-employed, because you’ll be acting as both a director and an employee in the business. After this, you’ll need to sign up to PAYE (pay as you earn) so that you can pay yourself through the limited company.

Look at your start-up costs and finances

Start-up costs 

Nowadays, it’s simple to work remotely without having to meet clients face to face so that you could operate from home without an office, with little equipment. Consider if you’ll need to purchase the following items as part of your start-up costs:

  • A computer or laptop
  • Back-up hard drives
  • Accounting software to make managing your finances more straightforward, such as Countingup.
  • A printer and paper
  • Postage costs
  • Storage cabinets
  • An additional telephone line

You can learn more about how to plan for managing start-up costs in this guide.

Business finances

Next, open a new business current account. 

It’s a legal requirement for limited companies to have a separate company account, and we’d always recommend it to sole traders too. A different account means that you won’t have to separate all your personal transactions from the business ones on your statements when you submit your self-assessment. In addition, a separate account will make it easier to keep records, and by using an account that comes with bookkeeping software such as Countingup that can manage your invoicing and tax estimates, you’ll be saving yourself hours of financial admin.

Second, does your business need any funding to get off the ground? For example, you might consider a business loan to cover your start-up costs or if you need a vehicle to be able to travel for work. As another option, you could also bootstrap the business, which means you don’t purchase items or equipment until you have made and saved enough profit to buy them.

Research insurance

It’s always wise to get insurance for your new business to protect you in case accidents happen. If a client or member of the public claims against you, then legal fees and compensation could cost tens of thousands. So, ensuring you have robust insurance in place is protecting the future of your business, or else you may have to cease trading. Here are some insurances that could be most relevant for a contractor business:

  • Professional indemnity insurance – protects you against claims made by dissatisfied clients if you make a mistake and are accused of professional negligence.
  • Public liability insurance – covers your legal fees and compensation if a member of the public makes a claim that they were injured in dealing with your business (for example, they tripped over your equipment) or your activities caused damage to their property.
  • Personal accident and sickness – as a self-employed person, the money stops coming in if you cannot work. This insurance will cover your living costs if you cannot work for an extended period due to illness or injury.
  • Business interruption insurance – provides financial assistance for lost revenue if you can’t work in your office because of fire, flooding, or other eventualities. You’ll need separate cover if you are unable to work due to illness or injury.
  • Buildings and contents insurance – if you are planning on working from home and all your equipment is stored there, ensure your home insurance is up to date and reflects the value of your work items. Also, check that your home insurance covers the home being used as a business property in the small print. 

We’ve partnered with Superscript to get you the best insurance deals possible to save new businesses money. So check out Superscript to find offers on business insurance cover for affordable prices.

Get up to speed on regulations

The most relevant regulation for contractors is IR35. However, recent regulation changes have many confused about the law for contracting businesses and self-employed people, so let’s break it down.

What is IR35

IR35 is a piece of tax avoidance legislation that presents both businesses and contractors abusing tax loopholes. IR35 refers to the difference between an employee and a contractor. First, an employee is an individual employed by a company. They will answer to a manager and are employed for a salary for regulated hours, regardless of how much work there is. A contractor, however, is paid a fee for a temporary period of employment (though this can be long-term) and will generally be let go by the company when the work is complete, or there is not enough work available to support having them employed.

It is more tax-efficient for a company to employ a contractor because they do not have to pay National Insurance for the individual and save money on other benefits that an employee would enjoy. such as:

  • Paid holiday
  • Pension contributions
  • Sick leave

IR35 arose because companies were hiring contractors (that worked through their own limited companies), and their duties were more or less the same as an employee’s – and it was saving both the contractor and the business tax. This relationship of a contractor acting as an employee, but not being called one, is called ‘a disguised employee’.

To ensure all parties involved are compliant, HMRC appoints an investigator to examine the relationship between the contractor and the company. They will determine whether contractors fall ‘inside’ IR35 (employee status) or ‘outside’ (contractor status).

What is ‘inside’ IR35?

If a contractor falls inside IR35, they are treated just as an employee would be. After investigation, they will be treated as an employee by the business for paying National Insurance and Income Tax, which the company can deduct from their pay like a regular employee salary.

What is ‘outside’ IR35?

Contractors that fall outside of IR35 are working for a company but without the benefits of employment. The company pays their fees, but the contractor will take their salary from their limited company (that they operate their freelance work from) or from a recruitment agency/third party that manages contractors. Contractors in this situation will continue to be responsible for managing their own taxes.

How will IR35 apply to my contracting business?

If you are a contractor, then it’s essential to understand this legislation and stay on the right side of HMRC, as you don’t want to be mistaken for manipulating the tax system. If your contractor status is in question, there are ways you can prove that your relationship with the employing business is different from their employees:

  • Highlight that you don’t have minimum hours, report to a line manager, or wear a uniform (if applicable) or other requirements that an employee would have.
  • Don’t name your limited company after yourself.
  • Prove you have your own business insurance.
  • Show you have multiple clients at once by showing your invoices.
  • Keep a record of any investment in your professional development (as usually, businesses will pay for their own employees to remain certified).

Find some clients

After taking these steps, you’ll be ready to start trading – so now, you need to find some clients. You may want to begin by creating a professional website that potential clients can visit to learn about the services you offer and your fees. Websites builders like WordPress or Wix have free templates you can use to create a simple website.

The direct approach

An excellent place to begin finding work is to reach out to your existing network of friends, family and ex-colleagues. These people might need your services themselves or know someone who does, and research shows that 92% of customers trust a referral from someone they know. 

Another method is to approach leads directly. This method may be a little more time consuming because you might have to research companies and find the correct person to talk to within an organisation. Still, it is a more personal approach to finding new business. 

After asking your network for business opportunities, take the following steps to look for work opportunities:

  1. Look at your local area.
  2. Find businesses or potential clientele that are a good fit for your business services.
  3. Reach out to them via phone or email (if that information is available online) or through social media. 

It’s best to make that personal connection by speaking to someone directly instead of messaging a company through a generic email or an online form. Once you’ve started local, spread your search area to include further afield into other towns or cities you’d like to work in.


Networking will also be a good use of your time in the early stages of starting your contracting business. Utilising LinkedIn to make connections with people you have worked with, or would like to work with, could be a way to get your foot in the door of companies who need your services.

Try to attend events or online discussions in your specialist area. Events will introduce you to more people in the industry and potentially be a good source of business, depending on the people you meet there.

Marketing ideas

Contracting can often be about who you know, but you can also use marketing methods to spread the word about your services. Here are some marketing strategies you could use after you have started your business:

  • Offer vouchers for a free half-hour of your time or a discount on invoices for referrals or new clients.
  • Use digital marketing techniques such as local SEO for finding clientele in your area and content marketing to show your expertise.
  • Use social media. Generally, B2B businesses may have more success via Linkedin or Twitter, which has a culture centred around information sharing. Using LinkedIn to connect with other companies, potential clients, and other contractors can help to build credibility.
  • Attend events in a specialist industry if you work in a specific niche.
  • Use offline marketing such as flyers, business cards or newspaper ads.
  • List your services in online directories.

Save time on financial admin 

Financial management can be stressful and time-consuming when you’re self-employed. That’s why thousands of business owners use the Countingup app to make their financial admin easier. 

Countingup is the business current account with built-in accounting software that allows you to manage all your financial data in one place. With features like automatic expense categorisation, invoicing on the go, receipt capture tools, tax estimates, and cash flow insights, you can confidently keep on top of your business finances wherever you are. 

You can also share your bookkeeping with your accountant instantly without worrying about duplication errors, data lags or inaccuracies. Seamless, simple, and straightforward! 
Find out more here.