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.
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.
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 will need to be an Irish resident. So if you don’t already live here, or you’re not planning on moving here, you cannot set up as a Sole Trader here.
Get A Personal Service Number (PPSN)
Everyone in Ireland should have a PPS Number. But if you're moving to Ireland, you may not have one yet - and you will need to get one. A PPSN is a unique reference number which helps you access social welfare benefits, public services and information in Ireland. If you don't have a PPSN, you can contact the DEASP’s Client Identity Services (CIS). But remember, even if you get a PPSN, you also need to live in Ireland in order to operate as a Sole Trader in Ireland.
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%).
Taxes You Need To Pay As A Sole Trader
As a Sole Trader, you don't have as many legal requirements as a Limited Company, but paying taxes will always be an obligation to any business.
Preliminary Tax must be paid on or before 31st October each year. Preliminary Tax is the Income Tax, PRSI, and USC that 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 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 which can be used to reclaim the VAT on your expenses. You must also charge VAT on sales and prepare VAT returns and filings. Or 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.
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 and 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