Are you thinking about starting a business in Ireland? Setting up can be a smooth process, but you need to determine if you want to be a Sole Trader or Limited Company first.
Here we have gathered a checklist of personal requirements, business activities and actionable tasks that you can follow in order to get an understanding of what it takes to be a Sole Trader in Ireland.
Please note that this checklist is a general overview of the main steps it takes to set up as a Sole Trader in Ireland. Keep in mind that some steps will vary depending on your personal situation.
☐1. Determine your business strategy.
Firstly, you need to define your business strategy. You should clarify how want your business to achieve its goals, satisfy customers and sustain a competitive advantage. Generally, anyone in Ireland can become a Sole Trader. There are some exceptions that may insist you operate as a Limited Company. For example, a technical contractor who wants to contract employment out to large organisations may be required to be a Limited Company. Being a Limited Company can mean that you have more credibility and can instil confidence in the industry.
If you plan to sell your product or service to a small market, then a Sole Trader could suit you. Deciding to be a Sole Trader can largely depend on how you want to conduct your business.
☐2. Get a Personal Public Service Number (PPSN).
You need to have a PPSN when registering as a Sole Trader in Ireland. A PPSN is a unique reference number that helps you access social welfare benefits, public services and information in Ireland. Revenue states: “If you are non-resident in Ireland you can contact the DEASP’s Client Identity Services (CIS)”. Keep in mind that even if you get a PPSN, you may also need to live in Ireland in order to become a Sole Trader in Ireland.
☐3. Be aware that you are personally liable for all the debts of the business.
This means that your personal assets, such as family home, can be taken if your business falls into debt. In other words, you are personally liable for any claims against the business. We recommend that you consider the risks it takes to open your business. For example, if there is a possibility that you could lose money on this venture, then it is your own personal finances that are at risk, not the business’.
If you’re worried about the damage to your personal liability, we recommend that you look into becoming a limited company. A limited company has the advantage of ‘limited liability’. This means that the personal assets of directors or shareholders generally cannot be seized to pay off company debt.
☐4. Be aware that you are getting €500 less tax credit than PAYE employees.
Employees currently have a PAYE credit of €1,650 versus a tax credit of €1,150 for the self-employed (Budget, 2018). However, as a Sole Trader in Ireland, any expenses that are wholly and exclusively for the purpose of your trade can be deducted against your income. Keep in mind that what you may consider to be wholly and exclusively for the business, may not be deemed as such by Revenue. Be sure to check with your accountant.
☐5. Be aware that you are the sole owner of the business.
As a Sole Trader, you have sole responsibility of the business and anyone who works for you will be an employee of your business.
☐6. Be aware that as a Sole Trader in Ireland, all the profits that the business makes is essentially your income. This income is subject to tax up to 52%.
All the money that the business makes is essentially your income. You can deduct any expenses that are directly related to your business against your income, for example, rent and heat of business premises or employees’ wages. However, all income after expenses (your profit) is subject to tax up to 52% – Income tax @ 20-40%, PRSI up to 11% and USC @ 4%.
☐ 7. You need to keep proper books and records so you can file tax returns.
As a Sole Trader in Ireland, you need to file tax returns. It is important that you are able to keep organised records of your transactions. However, you don’t need to file annual returns with the Companies Registration Office (CRO) and your accounts are not subject to audit. This is an advantage when becoming a Sole Trader in Ireland. Keep in mind that you need to keep your books and records for six years, so it is a good idea to store these as digital copies.
☐8. You need to register as a ‘self-employed person’ on The Revenue Online Service (ROS).
You need to register as a ‘self-employed person’ on ROS. When you’re becoming a Sole Trader in Ireland, you need to register on ROS as a ‘self-employed person.’ You can use this service to file and pay your Income Tax (IT), VAT and Employers PAYE returns.
☐9. You need to register for ‘self-assessment’ when registering for tax.
Self-assessment is where you make your own assessment of the IT, Universal Social Charge (USC), Pay Related Social Insurance (PRSI) and Capital Gains Tax (CGT) you should pay for a tax year. A Sole Trader’s income is self-assessed in the same way a director of a limited company needs to self-assess when filing their directors return. You can do this online via ROS or if you’re already registered for ‘myAccount’ on Revenue.ie then you can register for tax through that system. It can be a time-consuming task to register for tax, especially in a new startup. You can use a tax agent, such as Accountant Online to help you register for tax.
☐10. You need to file tax returns (submit a Form 11) before 31 October each year.
You need to file an Income Tax return and pay your tax liabilities before 31 October each year. This applies even if you made a loss or your business had minimal trading. Since you are registered as self-assessed, you are required to self-assess when filing your annual tax return. Revenue provides details on what you need to file a tax return in Ireland.
Some of the information required includes income details including rental income, foreign income and exempt income, your tax credits, allowances, relief and health expenses and capital gains. If you find this task to be too time-consuming for you and your business, you can use a tax agent, such as Accountant Online to calculate your tax liabilities and file your tax returns.
☐11. You need to pay Preliminary Tax on or before 31 October each year.
Preliminary Tax is IT, PRSI and USC that you expect to pay for a tax year. This is essentially an advance payment on next year’s tax bill. This does mean that you are paying tax on income that you have not yet earned. In addition, you can be charged interest for each day (or part of a day) past the Preliminary Tax deadline. This means that you need to put aside a portion of your profits each year to ensure that you can pay for Preliminary Tax.
☐12. You need to register for Value Added Tax (VAT) and submit VAT returns; if applicable.
If your business generates a turnover from the sale of goods over €75,000 or services over €37,500 in 12 months, you will need to register for VAT via ROS. This means that at any time that you estimate your business will supply goods or services over the threshold, you will need to register for VAT. This also applies to startup businesses who estimate that they will reach this threshold.
Revenue state that you or a tax agent, such as Accountant Online, can register your business for VAT. Sole Traders and limited companies in Ireland need to register for VAT. When you register, you will get a VAT number and you can reclaim the VAT on your expenses. You must also charge VAT on your sales and you must prepare and submit VAT returns. You should also check the VAT thresholds and rules for other countries if you’re supplying goods/services to other EU countries.
☐13. You need to register for employers PAYE and file employer monthly or quarterly return (P30) and employer end of year return (P35); if applicable.
If you plan to employ people, you will have to register as an employer and operate a payroll. You are responsible for deducting the appropriate PAYE tax, USC and PRSI from your employee’s wages as well as filing regular returns throughout the year. You will also need to provide employees with the appropriate payslip, P60 and P40. This can be a time consuming task and you may consider outsourcing payroll to a corporate body, for example Accountant Online.
☐14. You need to register your company for Relevant Contracts Tax (RCT); if applicable.
If you are a principal contractor, you will need to pay RCT. A principal contractor is someone who pays a subcontractor to carry out activities on behalf of your business. Subcontractors in construction, forestry, and the meat processing industry are expected to pay this tax. Revenue specifies that “you are not a principal contractor if the only construction work that you are involved in is on buildings or land for your own use or the use of your employees”.
You register for RCT when you register for tax and you make the payments through ROS. If you have a tax agent, they will fill out the required details.
☐15. If you want your business name to be different from your own name, you need to register your business name with the CRO.
The CRO states that registration of a business name is required if “an individual uses a business name which differs in any way from his/her true surname. It makes no difference whether the individual’s first name or initials are added”. For example, Sole Trader Anne O’Brien needs to register her business name if she traded as O’Brien Apparel but not if she traded as O’Brien or Anne O’Brien. Keep in mind that someone else can use your business name even if it is registered.
You can register a business name online with CRO for a fee of €20, or fill out a paper form for a fee of €40. You can register a business name online with CRO for a fee of €20, or fill out a paper form for a fee of €40. In contrast, a limited company can register a company name with the CRO and it is protected.
☐16. You generally need to have one form of ID verification and two forms of address verification to set up a business bank account in Ireland.
When you’re setting up a business, it’s best practice to keep your business income separate from your personal income. As a Sole Trader setting up a bank account in Ireland, you will generally need one form of ID verification; e.g. passport or driver’s licence and two forms of address verification of home address in Ireland; e.g. electricity or gas bill or current bank account statement to set up a business bank account in Ireland.
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