The road to becoming a Sole Trader in Ireland
If you want to start your business by selling to a small market, operating as a Sole Trader may be for you.
Setting up as a Sole Trader means there are no financial statements, no accounts audits, and an easier Startup process. You also have the option to become a Limited Company in the future. Take a look at our Sole Trader or Limited Company guide if you want more information on the differences or this checklist for setting up a Limited Company.
To help you set up as a Sole Trader, we’ve put together a handy checklist of personal requirements, business activities and actionable tasks to meet all legal requirements.
The first step is to register for income tax with Revenue.
Or, if you prefer, Accountant Online can help you to set up as a Sole Trader.
What you need to know as a Sole Trader
What’s Your Business Strategy?
Your business strategy will include how you expect your business to achieve its goals, satisfy customers and sustain a competitive advantage. This should also include whether your company should operate as a Sole Trader or a Limited Company. To become a Sole Trader in Ireland, you should be an Irish tax resident. So if you don’t already live here, or you’re not planning on moving here, we don’t recommend setting up as a Sole Trader here.
Get A Personal Service Number (PPSN)
Everyone living in Ireland should already have a PPS Number. But if you have just moved to Ireland, you may not have one yet. A PPSN is a unique reference number which helps you access social welfare benefits, public services and information in Ireland. In order to obtain a PPS number you will have to show that you have a need for it. Your Sole Trader Income tax registration can be used as evidence of this. You can apply for a PPS number with the Welfare office or we can apply for one for you.
You Are Personally Liable For All The Debts Of The Business
This means that your personal assets, such as a family home, can be seized and used to settle unpaid business debts. We highly recommend that you thoroughly consider the risks before deciding on setting up as a Sole Trader.
You Are Getting €300 Less Tax Credit Than PAYE Employees.
Employees currently have a PAYE credit of €1,650 versus a tax credit of €1,350 for the self-employed (Budget, 2019). 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. Be sure to check your business expenses with an accountant as your idea of expenses may differ from Revenue’s.
You Are The Sole Owner Of The Business
As a Sole Trader, you have the sole responsibility for the business. Anyone who works for you will be an employee of the business and you will need to operate payroll.
Be Aware That As A Sole Trader In Ireland, Your Income Is Subject To Tax Up To 52%
Everything the business makes is essentially your income. You can deduct any expenses that are directly related to your business against your income. However, all income after expenses (your profit) is subject to tax up to 52% (this is the sum of income tax @ 20-40%, PRSI @ 11% and USC @ 4%). You should therefore consider the total business income versus what you want to take out as a salary when setting up as a Sole Trader. Check out our comparison of the tax liability for a Sole Trader and a Limited Company to see an example.
Taxes you need to pay as a Sole Trader
Preliminary Tax should be paid on or before 31st October each year. It consists of Income Tax, PRSI, and USC and is a calculation of what you expect to pay for a tax year. This is essentially an advance payment on next year’s tax bill. So you are essentially 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. Therefore you need to estimate what your tax liability will be and put aside a portion of your profits each year to cover your Preliminary Tax liability.
Value Added Tax (VAT)
You will need to register for VAT if your business generates a turnover from the sales of goods over €75,000 or services over €37,500 in 12 months. This means if you estimate your business will supply goods or services above the threshold, you will need to register for VAT. When you register for VAT, you will receive a VAT number. When you file your VAT returns you can claim back the VAT you have paid as part of your business expenses. You must also charge VAT on sales and prepare VAT returns and filings. Check out our VAT Guide for more information about VAT. Accountant Online can register you for VAT and take care of your VAT returns and filings.
If you are employing people, you must register as an employer and operate payroll.
An employer is responsible for deducting the appropriate PAYE tax, USC and PRSI from your employees’ wages as well as maintain a Payroll Report which is reported to Revenue on a real-time basis. So it’s important that your business is able to maintain a timely payroll system. Our Simple guide to payroll provides more information about payroll.
Relevant Contracts Tax (RCT)
A principal contractor is someone who 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 that you are involved in is on buildings or land for your own use or the use of your employees”. RCT should be registered when you register for tax through ROS. An appropriate tax agent can fill out the required details for you.
Tax returns before 31 October each year
You need to file a self-assessed Income Tax return and pay your tax liabilities before 31 October each year. This applies whether you made a loss or your business had minimal trading.
The information required includes;
Income details including rental income, foreign income, and exempt income.
Your tax credits, allowances, relief, health expenses, and capital gains.
Revenue provides more details on what you need to file a tax return in Ireland.
What else do you need to do?
Register Your Business Name With The Companies Registration Office
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.Learn More
Set Up Your Business Bank Account
When you’re setting up a business, it’s best practice to keep your business income separate from your personal income. Separating your bank accounts also makes it easier to business expenses and personal expenses. 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. We recommend dropping by your local bank and enquiring about their business accounts.Learn More