Summary
Starting a trades business in the UK is genuinely simple at the sole-trader level — there's no minimum capital, no compulsory licence to "be a builder" or "be a plumber" in general, and you can legally start trading the same day you decide to. The complexity comes from the trade-specific and tax-specific layers on top: whether your work requires a competent person scheme registration, whether you're inside or outside the Construction Industry Scheme, when VAT becomes mandatory, and what changes if you decide to form a limited company instead.
Most sole traders under-register rather than over-register — they start trading, get busy, and only think about HMRC registration, insurance, or CIS status when a client or a larger contractor asks for evidence of it. This is backwards and increases risk: HMRC applies penalties for late notification of self-employment, uninsured work exposes you personally to unlimited liability claims, and starting gas or notifiable electrical work without the right registration is not just risky but potentially illegal.
This guide walks through the setup sequence in the order that actually matters on site: business structure, HMRC/Companies House registration, trade-specific registrations, insurance, banking and bookkeeping, then the ongoing compliance you need to keep on top of once trading.
Key Facts
- Sole trader — the simplest legal structure; no separate registration fee; unlimited personal liability for business debts; profits taxed as personal income via Self Assessment
- Limited company — a separate legal entity from you personally; registered with Companies House (typically £50 online, approved within 24 hours); director duties under the Companies Act 2006; profits taxed via Corporation Tax, then dividends/salary taxed personally
- Sole trader vs Ltd crossover point — commonly worth reviewing around £30,000–£40,000 annual profit, where the tax efficiency of a limited company structure starts to outweigh the extra admin — see sole trader vs limited company for the detailed comparison
- HMRC registration deadline (sole trader) — register for Self Assessment by 5 October following the end of the tax year in which you started trading; missing this risks a failure-to-notify penalty
- CIS (Construction Industry Scheme) — required if you work as a subcontractor for a contractor in construction; contractors deduct 20% (CIS registered) or 30% (unregistered) from your labour payments and pass it to HMRC as an advance against your tax bill
- Gross payment status under CIS — available once turnover and compliance history thresholds are met (broadly around £30,000 turnover with a clean tax record), allowing payments without deduction at source
- VAT registration threshold — £90,000 taxable turnover in any rolling 12-month period (not just the tax year); registration must be completed within 30 days of exceeding the threshold; voluntary registration below the threshold is also possible and sometimes advantageous
- Domestic reverse charge VAT — applies to most B2B construction services under CIS; the customer accounts for VAT instead of the supplier, changing how VAT is shown on subcontractor invoices — see vat for trades
- Public liability insurance — not a legal requirement for most trades, but essential; typical minimum £2m for domestic work, £5m+ often required for public sector or commercial contracts
- Employer's liability insurance — legally required the moment you take on any employee, including casual or part-time staff, under the Employers' Liability (Compulsory Insurance) Act 1969; minimum cover £5m
- Competent person schemes — Gas Safe (all gas work — legal requirement, not optional), NICEIC/NAPIT/ELECSA (electrical work, self-certification for notifiable Part P work), FENSA/CERTASS (windows and doors), HETAS (solid fuel appliances)
- Business bank account — not legally required for sole traders, strongly recommended for clean bookkeeping and to separate personal/business finances; mandatory for limited companies
- Making Tax Digital for Income Tax — being phased in for sole traders and landlords above set income thresholds; requires digital record-keeping and quarterly HMRC updates using approved software rather than a shoebox of receipts
- National Insurance for sole traders — Class 4 NI on profits above a set threshold; Class 2 NI is now voluntary for most, relevant mainly for building state pension contribution years if profits are low
- Record retention — keep business records for at least 5 years after the 31 January Self Assessment deadline for the relevant tax year
- Trading name rules — sole traders can trade under their own name or a business name, but must not imply limited company status ("Ltd", "Limited", "LLP", "plc") unless actually registered as such
- Data protection — if you hold customer contact details, photos, or payment data, UK GDPR and the Data Protection Act 2018 apply, regardless of business size
Quick Reference Table
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Try squote free →| Step | What to Do | When |
|---|---|---|
| 1. Choose business structure | Sole trader (simplest) or limited company | Before you start trading |
| 2. Register with HMRC / Companies House | Self Assessment (sole trader) or incorporation (Ltd) | Sole trader: by 5 October following first tax year; Ltd: before trading under that entity |
| 3. Register for CIS (if applicable) | HMRC CIS registration as subcontractor | Before your first payment from a contractor |
| 4. Register for competent person scheme | Gas Safe / NICEIC / NAPIT / FENSA as relevant to trade | Before undertaking notifiable or regulated work |
| 5. Arrange insurance | Public liability (strongly recommended); employer's liability (mandatory with staff) | Before your first job; before taking on any employee |
| 6. Open a business bank account | Digital challenger bank or high-street business account | Ideally before trading; mandatory for Ltd |
| 7. Set up bookkeeping | Spreadsheet initially acceptable; MTD-compliant software as thresholds are phased in | Ongoing from day one |
| 8. Register for VAT (if required) | HMRC VAT registration | Within 30 days of exceeding £90,000 rolling 12-month turnover |
| 9. Take on staff (if/when) | PAYE registration, right to work checks, employer's liability insurance | Before the first employee starts |
Detailed Guidance
Step 1: Choose Your Business Structure
The overwhelming majority of trades businesses start as sole traders because it's the fastest and cheapest way to start legally trading — there is no incorporation step, no Companies House filing, and no separate legal entity to maintain. The trade-off is unlimited personal liability: if the business can't pay a debt or loses a claim, your personal assets are exposed.
A limited company separates the business from you personally — creditors and claimants generally can't reach your personal assets beyond what you've invested, except in cases of personal guarantees or wrongful trading. It also changes how you're taxed: profits are taxed via Corporation Tax (rates vary by profit band), and you then draw income as a combination of salary and dividends, which is usually more tax-efficient once profits are consistently above roughly £30,000–£40,000 a year, though the exact crossover depends on your personal circumstances.
Ltd companies come with more admin: annual accounts filed at Companies House, a confirmation statement, director's duties under the Companies Act 2006, and generally the need for an accountant. For most people starting out, sole trader first and a later switch to Ltd once profit and risk profile justify it is the standard path — see sole trader vs limited company and limited company for the detailed financial comparison.
Step 2: Register With HMRC (or Companies House)
Sole trader: register for Self Assessment online via GOV.UK. The deadline is 5 October following the end of the tax year in which you started trading (the UK tax year runs 6 April to 5 April) — miss this and HMRC can apply a failure-to-notify penalty even if you file and pay on time once registered. You'll then file a Self Assessment tax return annually and pay Income Tax plus Class 4 National Insurance on your profits.
Limited company: register (incorporate) with Companies House online — typically around £50, approved within 24 hours for most straightforward applications. You'll need a company name (checked for availability), a registered office address, at least one director, and details of shareholders. Once incorporated, you must also register for Corporation Tax with HMRC within 3 months of starting to trade, and file annual accounts and a confirmation statement with Companies House every year.
Step 3: CIS and Subcontractor Status
If you'll be working as a subcontractor for a contractor on construction work — the definition is broad and covers most building trades — you need to register for the Construction Industry Scheme with HMRC. Contractors are legally required to verify your CIS status and deduct tax from your labour payments before paying you: 20% if you're CIS-registered, 30% if you're not. These deductions are an advance against your eventual tax bill, reconciled at Self Assessment.
Once turnover and compliance history meet HMRC's thresholds, you can apply for gross payment status, meaning contractors pay you in full without deduction — useful for cash flow, but it requires an ongoing clean compliance record with HMRC to maintain. See cis scheme and subcontracting for the deduction rates, thresholds, and return deadlines in detail.
Step 4: Trade-Specific Registration
Some trades cannot legally operate without a specific registration, regardless of business structure:
- Gas work — anyone working on gas fittings or appliances must be Gas Safe registered; this is a legal requirement under the Gas Safety (Installation and Use) Regulations 1998, not optional guidance. General plumbing work that doesn't touch gas appliances doesn't require it.
- Notifiable electrical work — new circuits, consumer unit changes, and additions to kitchen/bathroom circuits are notifiable under Part P. Registering with a competent person scheme (NICEIC, NAPIT, ELECSA) lets you self-certify this work rather than notifying building control separately for every job.
- Windows and doors — FENSA or CERTASS registration allows self-certification of replacement window/door installations under Building Regulations.
- Solid fuel appliances — HETAS registration covers installation and servicing of wood burners and other solid fuel heating.
See competent person for a full comparison of scheme costs, coverage, and the self-certification routes each one offers.
Step 5: Insurance — What's Legally Required vs What's Essential
Only one type of insurance is a legal requirement for most trades businesses: employer's liability insurance, the moment you take on any employee — including casual, part-time, or family member staff — under the Employers' Liability (Compulsory Insurance) Act 1969. Minimum cover is £5m, and operating without it when you have staff can result in significant fines.
Public liability insurance is not a legal requirement, but in practice it is essential: it covers claims from third parties (customers, members of the public) for injury or property damage caused by your work. Most main contractors, letting agents, and larger clients won't engage a tradesperson without evidence of public liability cover — typically £2m minimum for domestic work, often £5m or more for commercial or public sector contracts. See public liability for policy exclusions and typical premium ranges.
Tools and van insurance, professional indemnity (relevant if you provide design or specification advice, not just installation), and income protection are all worth considering but are commercial decisions rather than legal requirements.
Step 6: Business Banking and Bookkeeping
A separate business bank account is not a legal requirement for sole traders (it is for limited companies), but running business income and expenses through a personal account makes bookkeeping, tax return preparation, and proving business expenses significantly harder — and is a common source of errors that trigger HMRC queries. Digital challenger banks (Starling, Monzo business accounts) are popular with tradespeople for low fees and simple app-based expense categorisation; high-street banks remain relevant for those who want in-branch cash handling or existing relationship banking. See business banking for a fuller comparison including card terminal costs.
Making Tax Digital for Income Tax is being phased in for sole traders and landlords above set income thresholds, requiring digital record-keeping and quarterly submissions to HMRC via approved software rather than annual paper-based reconstruction of the year's income and expenses. Even where you're not yet mandated, starting digital record-keeping early avoids a disruptive scramble later.
Step 7: VAT — When It Becomes Mandatory
VAT registration is only mandatory once your taxable turnover exceeds £90,000 in any rolling 12-month period (this is a backward-looking test applied continuously, not just at the tax year end) — you must register within 30 days of crossing the threshold. Below the threshold, voluntary registration is possible and is sometimes worthwhile if most of your customers are VAT-registered businesses who can reclaim the VAT you charge them, or if you want to reclaim VAT on significant tool/van/material purchases.
If you're a CIS subcontractor invoicing another VAT-registered construction business, the domestic reverse charge changes how VAT is handled on your invoices — the customer accounts for the VAT rather than you charging and collecting it. Get this wrong and invoices can be rejected or payment delayed. See vat for trades for the full mechanics and flat rate scheme considerations.
Step 8: Taking On Staff
If and when you take on your first employee, you need to register as an employer with HMRC for PAYE, carry out a right to work check before their first day, provide written terms of employment, pay at least the National Minimum Wage, arrange employer's liability insurance (see above), and set up pension auto-enrolment where the employee meets the eligibility criteria. See taking on staff for the full checklist and current minimum wage rates.
Frequently Asked Questions
Do I need to register as a limited company to legally work as a tradesperson?
No. Sole trader status is entirely legal and is how the majority of UK tradespeople operate, particularly when starting out. A limited company is a tax and liability structure choice, not a legal requirement to trade.
When exactly do I need to register for VAT?
Once your taxable turnover exceeds £90,000 in any rolling 12-month period — this is tested continuously, not just annually, so you need to monitor turnover on a rolling basis, not just check once a year. You must register within 30 days of crossing the threshold.
Do I need Gas Safe registration if I only do general plumbing, not gas work?
No. Gas Safe registration is specifically required for work on gas fittings and appliances. General plumbing (water supply, waste, heating pipework not involving gas appliances) doesn't require it. If your work is ever likely to touch a boiler, gas cooker, or gas fire, you need Gas Safe registration before doing that work.
Can I be a sole trader and also be inside the Construction Industry Scheme?
Yes — most CIS subcontractors are sole traders. CIS is a tax deduction and verification scheme that sits alongside your business structure (sole trader or limited company); it doesn't require you to incorporate.
What's the single biggest mistake new trades businesses make at setup?
Delaying insurance and HMRC registration until a client or contractor asks for proof. Both carry real financial risk if you're caught without them — unlimited personal exposure to a claim without public liability cover, and HMRC penalties for late Self Assessment or CIS registration. Both take under an hour to sort out and should be done before, not after, the first paid job.
Regulations & Standards
Taxes Management Act 1970, s.7 (duty to notify chargeability) / Self Assessment — the legal basis for sole trader tax registration and reporting
Companies Act 2006 — governs limited company incorporation, director duties, and filing requirements
Value Added Tax Act 1994 (as amended) — sets the legal framework for VAT registration; the £90,000 threshold is set by HM Treasury and revised periodically — always confirm the current threshold on GOV.UK before relying on it for a live registration decision
Finance Act 2004, Part 3, Chapter 3 (CIS) — the statutory basis for the Construction Industry Scheme
Employers' Liability (Compulsory Insurance) Act 1969 — mandatory employer's liability insurance once staff are taken on
Gas Safety (Installation and Use) Regulations 1998 — legal requirement for Gas Safe registration to work on gas fittings and appliances
Building Regulations Part P — notifiable electrical work and competent person self-certification schemes
UK GDPR and Data Protection Act 2018 — obligations around customer data held by any size of business
GOV.UK: Set up as a sole trader — official registration process and deadlines
GOV.UK: Set up a limited company — Companies House incorporation process
GOV.UK: Construction Industry Scheme (CIS) — registration, deduction rates, gross payment status
GOV.UK: VAT registration — current threshold and registration process
Gas Safe Register — legal requirements for gas work registration
NICEIC — electrical competent person scheme registration and Part P self-certification
sole trader vs limited company — detailed tax comparison and incorporation steps
cis scheme — CIS deduction rates, gross payment status, and monthly returns
vat for trades — VAT registration threshold, flat rate scheme, and domestic reverse charge
public liability — insurance minimums and typical policy exclusions
competent person — Gas Safe, NICEIC, NAPIT, FENSA and other scheme comparisons