Going From Employed to Running Your Own Firm: What to Know First

‍‌​​​‌​​‌​​​‌​​‌‌​​‌​​​​​​​​‌​‌‌‍SiteKiln gives you plain-English information, not legal advice. If you need advice specific to your situation, talk to a qualified accountant or solicitor.

If you're thinking about jacking in PAYE and going on your own, you need a clear plan, not just a new logo and an Instagram page.

1. Decide how you're going to trade

For most people leaving site work, the choice is:

Sole trader (self-employed)

• Easiest to set up, you and the business are legally the same person.
• You keep all profits after tax, but you're personally on the hook for debts and claims -- your house, van, savings are all on the line if something goes badly wrong.
• You register with HMRC for Self Assessment as a sole trader and pay income tax + Class 2/4 NI on your profits.

Limited company

• You create a separate legal entity at Companies House -- the company takes the risk, not you personally (within reason).
• You pay corporation tax on company profits, and then pay yourself via salary/dividends, which can be more tax-efficient once profits are decent (think £50k+ a year).
• More admin: annual accounts, company tax return, confirmation statement, separate bank account.

For a one-man band doing local domestic work, starting as a sole trader is usually fine; if you're planning to grow fast, take on bigger contracts, or want more protection, talk to an accountant about going Ltd.

2. Legal and tax jobs you cannot dodge

If you do nothing else, do these.

As a sole trader

• Register as self-employed with HMRC (Self Assessment):
  • You must do this if you earn more than £1,000 from self-employment in a tax year.
  • Deadline: by 5 October after the end of the tax year you started trading.
  • You get a UTR (Unique Taxpayer Reference) and file a tax return every year.
• Register for CIS if you're doing construction work as a subcontractor or taking on subs yourself.
• Keep records of all income and expenses (invoices, receipts, bank statements) so you can fill in your Self Assessment and prove your numbers.

As a limited company

• Register the company with Companies House and for corporation tax.
• File annual accounts and a company tax return every year; run a proper business bank account.
• If you pay yourself a salary or hire staff, you need to set up PAYE as an employer with HMRC.

Either way

• Watch the VAT threshold -- once your taxable turnover goes over the current limit (check GOV.UK), you must register for VAT.
• Get clear on employment status if you use labour only -- HMRC and CIS get twitchy if people are really employees but treated as subs.

3. Insurance you actually need

Don't go self-employed without this -- the risk is too big.

• Public liability insurance -- covers you if your work or your lads damage someone's property or injure someone. Every self-employed builder should have this as a minimum.
• Employers' liability insurance -- legal requirement if you employ anyone (even a part-timer or apprentice on PAYE).
• Professional indemnity insurance -- if you design, specify, or give technical advice (e.g. structural alterations, design-and-build kitchens). Covers claims that your advice/design was negligent.
• Tools and plant insurance -- covers your tools/kit against theft and damage. Often sold with builder's packages.
• Contract works / "all risks" -- covers the work in progress on site (e.g. half-finished extension damaged by fire or storm).

You don't have to buy the most expensive policy going, but you do need enough cover that one bad job or accident doesn't wipe you out.

4. Practical set-up steps (in order)

If you're leaving an employer and going on your own, here's the sequence that causes least grief:

1) Check your contract with your current employer

• Look for restrictive covenants (e.g. can't poach their clients for 6-12 months).
• Plan your exit so you're not nicking their customers on the quiet and triggering a row.

2) Decide structure -- sole trader first, or go straight to Ltd

• If you're not sure, start sole trader and get an accountant to tell you when Ltd makes sense.

3) Register for tax

• Sole trader: register as self-employed / Self Assessment with HMRC.
• Ltd: set up company, register for corporation tax, sort PAYE if paying a salary.

4) Open a business bank account

• Even as a sole trader, keep business money separate; makes tax and cashflow far easier.

5) Sort insurance (before your first paid job)

• Public liability as a minimum, then add what you need (employers' liability, tools, contract works, PI).

6) Build your basic paperwork

• Simple quote template.
• Basic terms and conditions.
• Deposit and stage-payment terms.
• Invoices and receipts.

7) Decide how you'll keep records

• Spreadsheet or simple bookkeeping software.
• Keep every receipt and invoice; you'll thank yourself at Self Assessment time.

8) Line up your first 2-3 jobs before handing notice in

• You want some cashflow from day one, not three months of panic.

5. Common mistakes

• Leaving your job with no work lined up -- confidence is great, but rent is due on the 1st whether you've got a job booked or not.
• Not registering for tax -- HMRC will catch up, and late registration means penalties and stress.
• No insurance -- one accident or damage claim without PL cover can finish you before you've started.
• Mixing personal and business money -- makes tax a nightmare and looks unprofessional to clients.
• Pricing too cheap to "get going" -- you'll be busy, skint, and stuck with a reputation for being the cheap option.
• No written terms -- handshake deals are fine until the first dispute; then you've got nothing to stand on.

6. Who to contact

• HMRC -- Register as self-employed -- gov.uk/set-up-sole-trader (free)
• Companies House -- Set up a limited company -- gov.uk/limited-company-formation (£12 online)
• HMRC -- CIS registration -- gov.uk/what-is-the-construction-industry-scheme (free)
• GOV.UK -- VAT registration threshold -- gov.uk/vat-registration (free)
• ACAS -- employment rights if you're leaving a job with restrictive covenants: 0300 123 1100 (free)
• An accountant -- even one meeting to set up properly saves money long-term (paid)
• An insurance broker -- to get the right mix of PL, EL, tools, PI cover for your trade (paid)

7. Sources and legislation

• Income Tax (Trading and Other Income) Act 2005 -- basis for self-employment tax. legislation.gov.uk/ukpga/2005/5
• Companies Act 2006 -- company formation and director duties. legislation.gov.uk/ukpga/2006/46
• Employers' Liability (Compulsory Insurance) Act 1969 -- EL insurance requirement. legislation.gov.uk/ukpga/1969/57
• Value Added Tax Act 1994 -- VAT registration thresholds. legislation.gov.uk/ukpga/1994/23
• Finance Act 2004 -- CIS framework. legislation.gov.uk/ukpga/2004/12

8. Related guides on this site

• 8.1 Sole trader vs limited company -- honest comparison
• 8.3 Business bank account -- why you need a separate one
• 8.4 Registering for CIS as a contractor
• 8.5 Writing quotes that protect you
• 8.6 Terms and conditions template -- domestic work
• 8.16 Scaling from one-man band to small firm
• S9 Setting up as a sole trader -- step by step
• S15 Insurance you actually need vs insurance you're being sold
• 6.1 Public liability insurance

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