A Sole Trader is one of the most common business structures in Ireland.
If you decide to set up as a Sole Trader, you will be setting up a business in your own name, and you will be personally liable to pay any debts of the business.
When you set up as a Sole Trader versus a Limited Company, there are fewer tax and accounting obligations, and the overall registration process is more straightforward.
In this guide, we’ll take you through the requirements for setting up as a Sole Trader, how to set up as a Sole Trader, and what you need to do to comply with Revenue and the Companies Registration Office (CRO).
1) Have a business plan
Writing a business plan is crucial for any business, whether big or small. Your business strategy will include how you expect your business to achieve its goals, satisfy customers and sustain a competitive advantage.
Suppose you have plans to grow your Sole Trader business in the future – for instance, apply for a business loan, expand into other markets, or apply for government startup support. In that case, you should consider what that means for your business structure. You can always change from a Sole Trader to a Limited Company at a later stage, but it’s worth understanding those requirements now in case you need to switch in the future.
2) Have a Personal Public Service Number (PPSN)
A PPSN is a unique reference number that helps you access social welfare benefits, public services, and information in Ireland. Everyone in Ireland should already have a PPSN, but you may not have one if you have just moved to Ireland.
To get a PPSN, you must show that you need it – your Sole Trader income tax registration in Ireland can be used to prove this.
Because you need to be a resident of Ireland to be a Sole Trader, you should visit your local Welfare office to apply for a PPSN. However, if you are not a resident, you are not without options. Non-residents can still start a business in Ireland by setting up a company.
3) Consider how much you expect to make as a business owner
Before registering as a Sole Trader in Ireland, we advise you to consider how much you expect to make. If you are making more money than you need as a salary, consider setting up a Limited Company. There are more tax-efficient ways to pay yourself as a Limited Company director. For instance, directors can take a salary and dividends and contribute to a company pension.
Sole Traders do not take a salary. Everything you earn as a Sole Trader is your income, which is subject to tax up to 55%. However, any costs directly related to your business are tax-deductible expenses and can be deducted against your profits, saving on your tax bill.
4) Sole Trader tax registration
(You will have access to Revenue’s eRegistration service if you have existing access to Revenue’s myAccount or ROS (Revenue’s Online System).
Usually, your Tax Reference Number (TRN) will be the same as your PPSN, but please note that your PPSN does not become your TRN until you register for tax.
If you already have an existing PPSN and are registered for ROS / MyAccount, you will usually get your TRN within five days. If you have only recently received your PPSN, you must submit the TR1, which can take 2-3 weeks to process.
Sole Trader tax
Income tax, PRSI and the Universal Social Charge
When registered with Revenue as a self-employed person, you pay income tax, PRSI and the Universal Social Charge under the self-assessment system by 31st October each year. You must know your annual Income Tax Return Deadline to avoid fines or penalties.
Sole Traders must pay Preliminary Tax on or before 31st October each year, and it is a calculation of what you expect to pay for a tax year. This is an advance payment on next year’s tax bill – i.e. tax on the income not yet earned. Ensure you save for your Income Tax bill AND your Preliminary Tax liability over the year.
Value Added Tax (VAT)
You will need to register for VAT if your business meets specific criteria. You only charge VAT or claim VAT back once registered, simplifying the invoicing process.
You must register as an employer and operate payroll if you employ people. An employer is responsible for deducting the appropriate PAYE tax, USC, and PRSI from your employees’ wages and maintaining a Payroll Report, which is reported to Revenue on a real-time basis. As a reminder, you cannot take a salary when registering as a Sole Trader in Ireland. Everything you earn is your income. Consider becoming a Limited Company and a director if you want a salary.
Relevant Contracts Tax (RCT)
A principal contractor pays a subcontractor to carry out activities on behalf of their business. If you are a principal contractor, you will need to pay RCT. Subcontractors in construction, forestry, and the meat processing industry are expected to pay this tax. However, Revenue specifies that “you are not a principal contractor if the only construction work you are involved in is on buildings or land for your own use or the use of your employees”.
5) Set up on Revenue's Online System (ROS)
Now that you’ve successfully registered for taxes, you must ensure you register for Revenue’s Online System (ROS). This system streamlines several critical aspects of your tax responsibilities in Ireland.
ROS is your centralised platform to gain insights into your current tax standing and seamlessly file tax returns and necessary forms while facilitating secure tax bill payments.
Collaborating with a professional accountant for annual accountancy and year-end requirements can ensure accurate and timely filing of your tax bills, avoiding penalties or compliance issues. This partnership lets you focus on core business operations while handling your financial obligations expertly.
Setting up on ROS for the first time
Apply for your ROS Access Number (RAN)
Apply for your Digital Certificate
Save your Digital Certificate
6) Register a business name
You only need to register a business name after registering for Income Tax as a Sole Trader. It’s important to note that registering a business name first does not mean you are registered as a Sole Trader in Ireland.
The Companies Registration Office (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 must register her business name if she traded as O’Brien Apparel but not as O’Brien or Anne O’Brien.
Keep in mind that someone else can use your business name even if it is registered. If you want protection around your business name, consider setting up as a Limited Company.
7) Consider taking out business insurance
Sole Traders are personally liable for all the debts of the business. This means that, as a Sole Trader, your assets, such as your family home, can be used to settle unpaid business debts.
It’s worth considering business insurance in cases of any misfortunes that could affect your business, such as fire, flood or theft, public, employer, product liability, or business interruption. Talk to your local insurance branch for more information on the types of coverage they offer.
8) Set up an online bookkeeping system
Any expenses wholly and exclusively for your trade can be deducted from your income. You can claim tax-deductible expenses in your Income Tax Return to save you on your tax bill at the end of the year.
Any expense receipts and computations (e.g., mileage) must be correctly calculated and recorded to make your tax returns accurate. Remember – you only file your tax returns once a year, and doing regular bookkeeping will significantly benefit you when it comes time to file your taxes. On top of that, if you are VAT registered, you need to file VAT returns, and your receipts and invoices are also required to calculate how much you owe and can claim back.
9) Set up your business bank account
It’s best practice to separate your business income from your personal income through a specific business bank account.
To set up a business 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 bill or current bank account statement.
10) Complete tax returns before 31 October each year
Finally, when registering as a Sole Trader, you must file Income Tax Returns before 31st October each year. Note that your first Income Tax return is due the following year after you set up – i.e. if you register as a Sole Trader in Ireland in 2023, your first tax return is due in 2024.
Income Tax Returns are self-assessed, meaning you need to calculate your tax bill or outsource the requirement to an accountant. They are required even if you made a loss or your business had minimal trading, and any late tax filings will incur fines and penalties.
With this in mind, you may consider needing an accountant for your small business. Navigating the intricacies of self-assessed tax returns and potential penalties could be overwhelming, which is where the support of an online accountant can prove invaluable. A professional’s expertise can help lift these burdens, enabling you to invest your time and energy into fostering your business growth.
Starting out as a Sole Trader
Setting up as a Sole Trader is straightforward and relatively quick compared to setting up a Limited Company. There are certain risks involved with starting as a Sole Trader, and we advise that you learn about the difference between a Sole Trader and a Limited Company if you need help deciding which route to go down.
Suppose you’re starting your business while still employed full-time. In that case, it’s crucial to manage your time effectively and maintain clear communication with your current employer to ensure there are no conflicts of interest. Balancing the needs of your new venture with your existing responsibilities can be challenging, but with careful planning and prioritisation, it’s certainly achievable.
Larissa is a Fellow Chartered Accountant (FCA) and is the CEO of Accountant Online, which specialises in company formation, company secretarial, annual accounting services, bookkeeping, tax, and payroll services for micro and small companies in Ireland and the UK.