With the increased Return to Office trend across the past couple of years, we’ve noticed a lot more people are taking the plunge into contracting, where you can be much more confident of continuing your work-from-home lifestyle.
The appeal of the contractor life is built around freedom, including the freedom to work where you choose. What you’ll need to remember as you start on your journey is that there’s plenty of responsibility to take on to go with it.
Key parts of that responsibility involve finances, from managing your finances to filing taxes in a way that’s fully compliant.
Follow our checklist below as you start out on your journey, whether you’re a contractor or self-employed starting a new business up, and you’ll be covered financially – compliant with legislation and able to manage your finances well from the off.
Choose Your Legal Structure
If you’re starting out as a small business, you might be a sole trader or a limited company. Contractors can also be sole traders, limited companies, or you can use an umbrella solution – which puts you into a legal structure as an employee.
Much has been said about the pros and cons of each, and we recommend you discuss this with an accountant as which option works best for you will vary significantly based on your specific plans and circumstances.
In brief, however, which you choose will affect your personal liability, how you get paid (and how much) and what your tax obligations are. You can see why it’s important to get this right!
Get Registered with HMRC
Registering with HMRC is a requirement for all businesses in their first year of trading, but depending on which model you chose, you might have a little more time.
A limited company must be registered with Companies House and signed up for Corporation Tax, and this should be done before the first payday – and yes, that’s true even if the only person you’re paying is yourself!
On the other end, you can’t register more than two months before the first payday.
As a sole trader, you should be registered before October 5th in your first tax year. You’ll want to register for self-assessment and for Class 2 NICs (National Insurance Contributions).
These are the first deadlines that you can be penalised for missing, so make sure you hit them. Set reminders ahead of each other deadline you’ll have to file for – tax returns, etc. – to ensure they’re done and done correctly. We recommend this even if you’re keeping your records up to date, for peace of mind.
For example, your income tax Payments on Account will be due on January 31st and July 31st each year.
Organise Your Business Finances
Even if you’re a sole trader and your financials are inextricable from those of your company, we recommend setting up a business bank account. It’s useful to keep your finances as well separated as possible, and it makes it much easier to record business incomings and outgoings when they’re the only things associated with a single account! You can always transfer money back into your operating account in the event you need to, but keeping clear what money is spoken for by your business and what money isn’t can help you avoid getting into that trouble to begin with.
If your business is a limited company, of course, having a separate bank account is a legal requirement.
Set Up Accounting Software
If you take away only one thing from this blog, let it be this: Don’t trust your finances to Excel or Google Sheets. While these programs are great at the things they’re designed to do, it’s easy for an error to be made just once and have done huge damage by the time that error is discovered.
If you’re working with an accountant, you may have access to cloud accountancy software as part of the package. Being able to access everything directly, wherever you are, can be a huge benefit.
Even if you’re not, there’s good reason to get familiar with accounting software from the off as Making Tax Digital phases in for sole traders and landlords earning over £50,000 annually in April 2026. More on this below.
Know Your Tax Obligations
By this we don’t necessarily mean you should keep up to date with all legislation and rulings affecting your tax (although someone involved in your accounting process should be!) but you should have enough information to be able to approximate your rough tax obligations and keep that separate from your operating expenses.
Know Your Tax Reliefs
Just as it’s important to know how much you’ll owe, it’s also important to have a good idea of where tax reliefs and expenses can help lighten the load.
Travel costs, capital allowances, and many other outgoings have reliefs associated with them, but of course it’s not quite as simple as that; there are limits to how much can be claimed. The field of expenses is a thorny one and well beyond the scope of this blog, so we will simply recommend you discuss this with an expert to be sure.
Making Tax Digital
The government’s Making Tax Digital program has been in the works for some time. With the new tax year starting in April 2026, sole traders and landlords earning over £50,000 will need to comply with this initiative.
This means your bookkeeping will need to be digital, with quarterly updates submitted only using MTD-compatible accounting software.
Those making £30,000 or more will follow on the next tax year, and most businesses are already following these guidelines.
Appropriate software does have the additional benefit of making bookkeeping much simpler for your business’ own requirements.
Schedule Time to Plan for the Future
One of the biggest advantages of self-employment is that building your brighter future is entirely in your hands, and one of the biggest advantages of accurate, ongoing bookkeeping is that it gives you the information you need to plan your business’ future.
We recommend combining these facts and regularly taking the time to consider how you can build what you’re doing for the future.
If you have any other questions, please just let us know. We’ll be happy to help.
