One of the most common questions Irish tradespeople ask when their business starts to grow is whether they should stay as a sole trader or set up a limited company. There is no universal right answer. It depends on your turnover, your risk profile, and your plans for the business.
Here is a plain English breakdown of the key differences.
What Is a Sole Trader?
A sole trader is the simplest way to be self-employed. You register with Revenue, pay income tax on your profits through self-assessment, and trade in your own name or under a registered business name.
There is no legal distinction between you and the business. If the business has debts or a legal claim against it, your personal assets are at risk.
What Is a Limited Company?
A limited company is a separate legal entity from you as an individual. It has its own tax registration, files its own accounts with the CRO, and pays corporation tax on its profits.
The key protection is limited liability. If the company has debts or faces a legal claim, your personal assets are generally protected. The company is liable, not you personally.
Tax Differences
As a sole trader, your profits are subject to income tax at 20 or 40 percent depending on how much you earn, plus PRSI and USC. Higher earners pay a significant combined rate.
A limited company pays corporation tax at 12.5 percent on trading profits. You then pay yourself through a salary and dividends, which have their own tax treatment. At higher income levels, the combined tax position through a company can be more efficient than sole trader income tax.
However, the administrative cost of running a company, including annual CRO returns, company accounts, and director’s obligations, is higher. You will need an accountant and the fees will be greater than for a sole trader return.
When a Limited Company Makes Sense
For most tradespeople starting out or earning under roughly €60,000 to €70,000 per year in profit, the tax saving from a limited company often does not outweigh the additional administrative cost and complexity.
A limited company starts to make more sense when profits are consistently higher, when you want the protection of limited liability, when you are taking on larger commercial contracts that require it, or when you want to retain profits in the company rather than drawing them all out personally.
What to Do
Talk to an accountant before making the decision. The right structure depends on your specific numbers and circumstances. A good accountant who works with tradespeople will give you a clear picture of the tax difference at your level of income and help you make an informed choice.
Do not set up a limited company because it sounds more professional or because someone told you that you should. Do it because the numbers make sense for your situation.
Whatever structure you use, the fundamentals of running a good business are the same: price properly, invoice promptly, collect what you are owed, and keep clean records.
Written by Maebh Collins
ACA qualified, Dundalk-based. I build websites and write SEO content for trade businesses across Ireland and the UK. If you have questions, get in touch.