How To Choose Between Sole Trader And Limited Company

It’s easy to start operating as a Sole Trader. There’s less paperwork to deal with every year and it’s quick to get set up. When you’re just starting out, it’s often the best solution and you can change to a Limited Company later. However, you might end up paying a higher tax rate in the long term. Also, you can only be a Sole Trader in Ireland, if you are a resident in Ireland.

Please note that as a Sole Trader you are personally liable for any claim made against the business. Your personal assets (e.g. your home) could be used to settle any unpaid business debts. This is a risk you may prefer to avoid.

Alternatively, as a Limited Company, your personal finances are protected because they are separate from the business.

In many cases, you will benefit from a lower tax rate on your business income. However, there are more steps and regulations to get through when setting up.

Pros And Cons Of Sole Trader & Limited Company

Sole Trader

  • Simple to set up & shut down
  • Less legal filings compared to a Limited Company
  • You don’t have to prepare financial statements
  • All your profits are taxed at the income tax rate, which can be up to 40%
  • Personally liable for debts
  • Lower tax credit than employees
  • You still need to prepare a tax return

Limited Company

  • Low Corporation Tax rate
  • More tax reliefs and benefits
  • Credibility in the industry
  • Protection of private assets
  • More corporate filings and deadlines
  • Large fines and penalties for non-compliance with company law
  • More legal responsibilities
  • Longer and more expensive to set up than a Sole Trader

Is There A Difference In Salary?

When you’re starting a new business, you’re probably not worried about how you’re going to pay yourself – because many Startups may choose to put any money they make, back into the business.

However, this can be a deciding factor when choosing to become a Sole Trader or Limited Company.

For example, if you incorporate your company and you wish to take a salary, the Limited Company will pay you the salary through payroll. If you are a Sole Trader, any money you take from the business is described as ‘drawings’. These ‘drawings’ include what you pay yourself every week/month, plus personal expenses you take from the business. For example, a business lunch.

Many people start out as Sole Traders and then change their business structure later to become a Limited Company. Talking through the options with expert Client Services team will help you choose the right option for your business.

Tax Advantages As A Limited Company

We often get asked the question, will I pay less tax if I’m a Limited Company?

A Sole Trader in Ireland is required to pay between 20 – 40% income tax on all profits. In addition, you must add USC of up to 11% and PRSI of 4%.

On the other hand, limited companies benefit because they only pay corporation tax in Ireland at 12.5% on company profits. Furthermore, new limited companies may qualify for relief from corporation tax for the first 3 years of trading, depending on conditions. We recommend that you get in contact with our office in Dublin to find out more about how you can benefit from incorporating your company.

Is There A Difference In Accountancy Fees?

Fees For Sole Trader

Sole Trader accountancy fees are based on turnover, level of cash transactions and whether or not you'd like us to take care of your VAT returns. If you're ready to get set up as Self-Employed on Revenue, we can help you with your legal obligations from the get-go. Our fees for Sole Traders are based on what you need so if you get in touch, we can send you a quotation.

Fees For Limited Company

New Limited Companies can avail of our Startup Offer for accounting services for just €294 + VAT for the first six months after incorporation. After the offer has ended, our fees will vary depending on the complexity of your business and the expected turnover. Each quotation is based on what services you would like us to take care of. Our full-service accountancy includes VAT returns, payroll, directors returns and annual compliance.

Is It Best To Be A Sole Trader Or Limited Company?

When you’re deciding what structure is best for you.. take these into consideration…
  • What are the business activities?
  • What are the goals of your business?
  • Will you want to expand into other countries?
  • Will you be looking for funding from external investors?
  • Is your business a risk you’re willing to take?

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