Contracting in United Kingdom

The registration requirements for contractors in the UK vary depending on your business structure and nationality. Following Brexit, different rules apply to EU and non-EU citizens.

For EU citizens who were residents before December 31, 2020, the EU Settlement Scheme allowed them to continue living and working in the UK. Those arriving after this date need to comply with the UK's points-based immigration system, which applies to all non-UK nationals.

Non-UK citizens typically need a visa to work in the UK. For contractors, the most relevant visa options include:

• Skilled Worker visa: For employed roles with a UK sponsor.
• Global Talent visa: For recognized leaders or emerging leaders in specific fields.
• Innovator visa: For experienced business people with an innovative, viable business idea.
• Start-up visa: For early-stage entrepreneurs with a innovative business idea.
• Sole Representative visa: For representatives of overseas businesses establishing a UK presence.

Once legally able to work in the UK, contractors must register with UK authorities based on their chosen business structure:

1. Self-employed (sole trader): Register for Self Assessment with HMRC within three months of starting work as a self-employed contractor. You'll need to complete an annual tax return.
2. Limited company: Register with Companies House (the UK's registrar of companies). This can be done online, typically costs £12, and takes 24 hours. You'll need to provide details of directors, shareholders, and company articles. The company must also register with HMRC for Corporation Tax within three months of starting business activities.
3. Umbrella company: No business registration required. You become an employee of the umbrella company, which handles all administration, tax, and National Insurance deductions.

VAT registration is required if your annual turnover exceeds £85,000, though voluntary registration is possible for businesses with lower turnover. VAT-registered businesses must submit quarterly VAT returns and comply with Making Tax Digital requirements.

In the UK, social security contributions are known as National Insurance Contributions (NICs). The structure and rates of NICs vary depending on your business setup and employment status.

For Sole Traders:

• Class 2 NICs: A flat rate of £3.45 per week (2024-25) for self-employed people with profits above the Small Profits Threshold (£12,570).
• Class 4 NICs: 9% on profits between the Lower Profits Limit (£12,570) and Upper Profits Limit (£50,270), and 2% on profits above the Upper Profits Limit.

For Limited Company Directors:

• Class 1 NICs: Both employer and employee contributions on any salary paid:
  • Employee NICs: 12% on earnings between the Primary Threshold (£1,048 monthly) and Upper Earnings Limit (£4,189 monthly), and 2% on earnings above this.
  • Employer NICs: 13.8% on earnings above the Secondary Threshold (£1,048 monthly).
• No NICs are due on dividend income, making this a tax-efficient remuneration strategy for directors.

For Umbrella Company Contractors:

• Treated as employees with standard Class 1 NICs deducted from salary.
• The umbrella company pays the employer's NIC portion, but this cost is typically factored into their fees.

Benefits of NICs:

National Insurance contributions build entitlement to certain state benefits, including:

• State Pension (requires 35 qualifying years for the full new State Pension)
• Maternity Allowance
• Bereavement Support Payment
• Jobseeker's Allowance (contribution-based)
• Employment and Support Allowance (contribution-based)

Self-employed contractors typically have fewer state benefit entitlements than employees, particularly regarding unemployment benefits. Many contractors choose to supplement state provisions with private insurance, such as income protection or critical illness cover.

Opening a UK business bank account is an essential step for contractors, particularly those operating through a limited company where separation of business and personal finances is crucial for both tax and legal reasons.

Bank Account Options:

• Traditional Banks: Established providers like HSBC, Barclays, Lloyds, and NatWest offer comprehensive business account services but typically have more stringent application processes and monthly fees.
• Digital/Challenger Banks: Options like Starling Bank, Revolut Business, Tide, and Wise offer streamlined, mobile-first banking experiences. They often feature lower fees and faster account opening but may have limitations on cash handling or in-person services.
• Specialized Contractor Accounts: Some providers offer accounts specifically designed for contractors with features like IR35 assessment tools, accounting software integration, and contractor-focused support.

Account Opening Requirements:

For Limited Companies:

• Company formation documents (Certificate of Incorporation)
• Proof of business address
• ID and proof of address for all directors
• Companies House registration number
• Details of all company directors and significant shareholders

For Sole Traders:

• Proof of identity and address
• Proof of trading address (if different from personal address)
• Evidence of business activities (invoices, contracts, etc.)
• HMRC UTR (Unique Taxpayer Reference) number

Non-UK Residents:

Opening a UK business bank account as a non-resident can be challenging. Traditional banks typically require a UK address and sometimes a UK credit history. Digital banks may offer more flexibility for international contractors. Alternative options include:

• International bank accounts with UK branches
• Multi-currency digital payment platforms
• UK banking services specifically designed for non-residents

Banking Features to Consider:

• Integration with accounting software
• Fee structure (monthly fees, transaction costs, international payment charges)
• Multi-currency capabilities for international clients
• Mobile app functionality and user experience
• Overdraft and lending facilities
• Business credit card options