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Choosing between a sole trader and a limited company is one of the biggest decisions for an Irish business owner. In short: a sole trader is simpler and you keep the profits, but you are personally liable for debts and pay income tax at 20% and 40%. A limited company offers limited liability and a 12.5% corporation tax rate, but with more compliance.
What is a sole trader?
A sole trader runs their own business under their own name and tax number. You and the business are legally the same, so you keep the profits after tax — but you are personally responsible for all business debts. You pay income tax (20% and 40%), USC and PRSI on your profits, and file an annual income tax return (Form 11).
What is a limited company?
A limited company is a separate legal entity, owned by its shareholders. Shareholders' liability is generally limited to what they invested, which protects personal assets. The company pays corporation tax at 12.5% on trading profits, and owners who work in the business are usually paid a salary, taxed through PAYE. Companies have more compliance: annual accounts, a corporation tax return and CRO filings.
Key differences at a glance
| Points | Sole Trader | Limited Company |
|---|---|---|
| Set up & Shut down | Simple. Just register and deregister | More complex but straight forward to set-up and strike-off. |
| Tax Filings | Income, VAT, PAYE | Corporation, VAT, PAYE |
| CRO Filings | Not required | Annual Return |
| RBO Filings | Not required | Must be kept up to date |
| Financial Statements | A simple set will do | Full set of statutory accounts required |
| Privacy – Financial Details | Not visible to public | Some info visible to public for a small fee |
| Access to credit | Less Likely | More Likely |
| Access to Grants & Schemes | Some schemes not available e.g. SURE, TOV | Generally more access |
| Credibility | Less perhaps | More perhaps |
| Legal Entity | You and business are one | Separate entities |
| Liability | Unlimited Liability | Limited Liability |
| Scope for tax planning | Restricted to %age of income | More options |
| Compliance | Tax obligations mainly | Tax and Company Law. Agencies CRO / RBO etc. Large fines and penalties for non-compliance |
| Exit Planning & Succession | Straightforward limited options | More Options for exits |
| Company Shares | Not possible | Yes |
| Sell Company Shares | Not Applicable | Yes |
| TAX Return | Prepare each year | Prepare each year |
| TAX Liability | Profits are taxed as your income at 20% and 40%, plus USC and PRSI (combined up to about 52%) | Profits are taxed at 12.5% (Corporation Tax) |
| Owner Drawings / Pay | No salary. Taxed on profit not drawings | Paid a salary. Taxed on drawings not profit |
| Business Name Registration | Need to register with CRO if using another name. | Need to register with CRO if using another name. |
| Financial & Salary Planning | Limited Scope | Higher Scope |
| Pensions and Retirement Planning | Strict limits on what you can invest and take benefits | More options in paying in and on retirement |
| Preferred business contracts | Less Preference | Higher Preference |
How each structure is taxed
Sole traders pay income tax at 20% and 40% on profits, plus USC (up to 8%) and PRSI (4.1%), so the top combined marginal rate is around 52%. A company pays 12.5% corporation tax on trading profits, and the owners then pay income tax on any salary or dividends they take — which is where much of the tax planning happens.
VAT and other obligations
Whichever structure you choose, you must register for VAT once your turnover exceeds €40,000 for services or €80,000 for goods in any 12-month period. Limited companies also file an annual return with the CRO and keep their beneficial ownership details up to date on the RBO register.
How to start as a sole trader
Register for income tax with Revenue, and keep records so you can file an annual return. If you trade under a name that is not your own, you must also register a business name with the CRO.
How to start a limited company
Incorporate with the CRO — choosing a name, directors, a company secretary and the share structure — then register for corporation tax with Revenue, open a company bank account, and set up payroll if you take a salary.
Which should you choose?
As a rough rule, incorporation becomes attractive once your profits are consistently high enough that you are paying the 40% rate, or when you want to protect personal assets and plan for growth. A sole trader suits a simple, lower-risk business. Model the numbers before deciding.
Frequently asked questions
Is it better to be a sole trader or a limited company?
It depends on your profits, risk and plans. A limited company offers limited liability and a 12.5% tax rate on retained profits, while a sole trader is simpler but personally liable and taxed at up to about 52%.
How much tax does a sole trader pay?
Sole traders pay income tax at 20% and 40% on profits, plus USC and PRSI — a combined top marginal rate of around 52%.
How much tax does a limited company pay?
A company pays 12.5% corporation tax on trading profits. Owners then pay income tax on any salary or dividends they take.
What are the VAT registration thresholds?
€40,000 for services and €80,000 for goods, in any continuous 12-month period.
Can I change from a sole trader to a limited company later?
Yes. Many businesses incorporate as they grow. It is a common transition, but it should be planned carefully for tax.
The choice between sole trader and limited company affects your tax, your risk and how you grow. If you are deciding which structure is right for you, talk to Bradán Accountants — we will run the numbers and set you up correctly from day one.
Sources
- Revenue.ie – Sole traders and limited companies
- Companies Registration Office (CRO) – Registering a company
- Revenue.ie – Income tax and corporation tax rates
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