Most UK contractors who work outside IR35 operate through a personal service company (PSC), which is simply a limited company where you are the sole director and shareholder. Setting one up is straightforward and can be completed in a few hours.
Step 1: Choose a company name
Your company name must be unique and not too similar to existing registered names. You can check availability on the Companies House website. Many contractors use a professional-sounding name rather than their own name, but either approach is fine.
Step 2: Register with Companies House
You can incorporate online at Companies House for a fee of £12 (as of 2025). You will need to provide a registered office address, director details, and shareholder information. Most contractors list themselves as the sole director and sole shareholder with one ordinary share of £1.
Step 3: Register for Corporation Tax
Within three months of starting to trade, you must register your company for Corporation Tax with HMRC. This is done separately from the Companies House registration. You will receive a Unique Taxpayer Reference (UTR) for the company.
Step 4: Open a business bank account
You need a separate bank account for your limited company. High street banks and digital banks like Starling, Tide, and Mettle offer business accounts. Keep all business income and expenses through this account to maintain clean records.
Step 5: Get professional indemnity insurance
Most clients and agencies require contractors to hold professional indemnity (PI) insurance, public liability insurance, and sometimes employer's liability insurance. Specialist contractor insurers offer packages covering all three from around £30 per month.
Step 6: Appoint an accountant
A specialist contractor accountant costs between £80 and £150 per month and handles your annual accounts, Corporation Tax return, VAT returns (if registered), self-assessment, payroll, and dividend paperwork. This is one of the best investments you can make as a contractor, freeing you to focus on billable work.
Step 7: Register for VAT (if applicable)
If your taxable turnover exceeds £90,000 in a 12-month period, you must register for VAT. Many contractors register voluntarily even below this threshold, as the Flat Rate Scheme can be beneficial in the early years. Your accountant can advise on the best approach.