How to Start a Contracting Business in the Trades

You've seen it on site — contractors taking home more quid, landing better jobs, and working to their own schedule. No chasing approvals, and no waiting on someone else's clock.

The shift is real. The UK construction market's expected to hit over £250 billion by 2025 and keep growing. For skilled tradespeople, that means a serious opportunity if you set up your contracting business properly.

This guide walks through what structure to choose, how to register with Companies House, and the tools that make it easier to manage jobs, clients, and cash flow without getting swamped in paperwork.

Why Contracting's on the Rise in the Building Trades

The contracting industry is growing fast, and it’s not hard to see why. More skilled workers are leaving permanent roles behind to work for themselves. Here's why:

• Better money - Contractors tend to earn more than permanent employees, especially on short-term or specialist jobs. When companies need expertise fast, they’ll pay for it. Your net salary as a contractor usually ends up higher, even after income tax.
• More control - You choose the contract work you take, the clients you work with, and you can enjoy flexible working hours. You’re not waiting on rotas or approvals.
• Strong demand - Public and private sector projects need reliable contractors. From commercial builds to emergency call-outs, there’s plenty of work if you’re ready to take it on.

In fact, contract recruitment in the UK jumped 11% in August 2025, even while permanent hiring slowed down. That says it all. If you’re thinking about how to start contracting, now’s the time.

Pick a Structure That Works for How You Operate

Before you start contracting, you need to decide how to set up your business. This affects your take-home pay, tax, and how much protection you’ve got if something goes wrong.

The simplest route is a sole trader. You register with HMRC, submit a tax return, and pay income tax and national insurance on your profits. It’s quick to set up but offers no protection—your home and savings are at risk if something goes wrong.

Setting up your own limited company gives you limited liability, meaning the business is separate from you personally. You register with Companies House, open a business bank account, and the company pays corporation tax on profits. This setup can be more tax-efficient if you’re earning over £40,000 a year.

An umbrella company puts you on their books. They handle all the administrative duties—tax, payroll, compliance. You get a regular net salary, but they take a cut.

It’s a solid stepping stone if you’re just testing the waters before starting your own business.

What You Need to Get Started as a Contractor

The admin side of contracting isn't complicated, but skip these steps and you'll hit problems fast:

Registering with Companies House

If you're going the limited company route, this is your first stop. You can register online for £12—it takes less than a day. This gives you a legal business with its own name and protects your personal assets with limited liability.

You’ll need to file annual accounts showing your total income, profits, and expenses. It's more admin, but worth it for the tax advantages and professional image. Plus, you decide how to pay yourself through a mix of salary and dividends for tax purposes.

Opening a Business Bank Account

Whatever your structure, keeping your personal and business money separate is crucial. A business bank account makes it easier to track jobs, chase payments, and stay on top of cash flow. It also looks more professional. Many recruitment agencies and end clients won’t pay into personal accounts.

Protecting Yourself with Insurance

Most prospective clients won’t hire a contractor who isn’t properly insured. It's not just protection—it's part of being seen as a pro in the contracting industry.

• Professional indemnity insurance (sometimes called professional indemnity cover) protects you if your services, advice, or delays cause the client a financial loss. Many public sector and high-value contracting roles require this before you can start.
• Public liability insurance is essential if you’re working on construction sites or client premises. It covers accidents, injuries, or damage. If you’re self-employed and working with the public, this is a must-have.
• Employers’ liability insurance is legally required if you hire employees or independent professionals like subcontractors. Without it, you can’t legally take on help—even part-time.

Sort these policies out before you take on your first contract. It’s not just about ticking a box—it protects your contracting business and builds trust with new clients.

Winning Work and Keeping Clients Happy

Securing your first contract is a big step. But what really builds a lasting contracting business is how you handle the work—and the people paying you.

Start with specialist recruitment agencies.

Agencies know which clients are looking for contractors in your trade and location. Register with a few that match your skillset. They help match you to the right contracting roles so you can focus on the job, not cold calling.

Lock in clear terms from the start.

Always get a written contract that spells out the services, rate, scope of work, deadlines, and payment terms. It protects you and the end client if anything goes sideways. Avoiding disputes keeps your reputation and your invoices intact.

Deliver solid work and communicate well.

Sounds obvious, but doing a good job on time and keeping the client in the loop goes a long way. Reliable contractors get invited back. Good communication builds trust and often leads to referrals or repeat contract work.

Stay Compliant and Keep the Taxman Off Your Back

Tax works very differently when you’re not a permanent employee. Get it wrong, and HMRC could hit you with penalties, interest, or both. Here’s how it breaks down depending on your setup:

• Sole Trader
• Limited Company
• Umbrella Company

Tip: Hire a specialist accountant, someone who works with contractors and understands the rules. For £80–£200/month, they’ll help you stay compliant, file on time, and find all available tax benefits. This kind of professional advice is worth every penny.

Common Mistakes to Avoid When Starting Out as a Contractor

Independent contractors tend to trip over the same issues early on. Here's what to watch for:

Mixing Personal and Business Finances

Combining spending in one account leads to messy books and poor cash flow tracking. When business and personal transactions mix, it's hard to prove expenses to HMRC and easy to miss valid deductions.

Fix: Open a separate business bank account from the start and keep all contracting income and costs in one place.

Choosing the Wrong Business Structure

Going limited company too soon adds admin without enough income to cover accountant fees or justify the effort. On the flip side, staying a sole trader too long means missing tax efficiencies.

Fix: Review your company structure each year with your specialist accountant to stay tax efficient and legal.

Forgetting About Insurance

Too many self-employed contractors skip cover early on. One claim can wipe out your savings. Most prospective clients won’t even speak to you without valid insurance certificates.

Fix: Sort professional indemnity, public liability, and (if needed) employers' liability insurance before bidding for your first contract.

Poor Record-Keeping

Failing to track invoices, expenses, and payments risks HMRC penalties and higher tax bills. Lost receipts mean lost deductions.

Fix: Use software or hire a pro to log everything—from hours worked to tools bought—so you stay on top of income tax and annual accounts.

Relying on One Client

If they walk away or delay payment, you're stuck. Many new contractors don’t plan for gaps in contract work or delays in pay.

Fix: Build a pipeline of many clients across the private and public sectors. It spreads the risk and keeps cash flow steady.

How to Grow Your Setup Without Drowning in Admin

Once you're established as a contractor, growth means taking on bigger projects and potentially hiring help:

• Build your name – Reputation matters in the contracting industry. Solid services bring referrals and a wider range of clients.
• Bring in help – Start with subcontractors. Hiring employees means more administrative duties and legal cover, like employers' liability insurance.
• Use proper tools – Software handles contract work, cash flow, and client communication in one place.

Good Software Makes Life Easier

As your contracting business grows, so does the admin. More clients, more contracts, and more ways to lose track.

Using proper construction management software keeps everything in one place. You can see which jobs are running, which ones are profitable, and who still owes you. It helps you stay on top of time-consuming tasks.

Automated reminders, invoice generation, and built-in client communication tools save hours each week. You stay focused on delivering your services instead of admin.

If you're serious about growing your setup without drowning in spreadsheets, the right kit makes a difference. Choose construction management software designed for contractors that handles job tracking, client communication, and financial management. Generic business tools can have expensive add-ons you don't need, and slow you down.

Ditching the 9–5 for Contracting

Starting a contracting business is all about taking complete control. Get the structure sorted, protect yourself legally, and build systems that back you up when work gets busy.

Want to see how it runs on the site? Book a demo and see how Intrflex helps independent contractors run smarter from the start.

Frequently Asked Questions About How to Start a Contracting Business