Sole Trader vs Ltd Company

Essential topics covered include:

  1. Definition of a sole trader
  2. Comparison of Sole Trader vs. Limited Company
  3. VAT
  4. Cost of Set-up and Accounting Fees
  5. Switching from Sole Trader to Limited Compnay

So you’ve made the decision to start a business. But what structure is right for you – sole trader or limited company?

Our expert guide is here to provide you with all the information you need to know in order to make that decision. Of course, if you prefer face-to-face advice, you are welcome to get in touch with us for a personalised service!

One of the main differences between the two structures, is that sole traders are not legally separate from the business they are running. This means you are personally liable for debts. Within a Limited Company, Directors and Shareholders have limited liability.

Definition of a Sole Trader

A sole trader is a structure where a small business owner, freelancer or contractor sets up and operates a business independently.

Sole Trader Income

As a sole trader, everything you earn is classifed as income (after allowed expenses have been subtracted from the figure).  When you take money from the business to cover your personal expenses (called Drawings), it is different from a wage – wages are tax deductible.

Unlike with PAYE, you don’t contribute your income tax on a monthly basis throughout the year. Instead, you pay the bill at the end of the year. Depending on how much you earn, this could be higher than it would have been if you had structured your business as a limited company.

franchisee

A Comparison of Sole Trader vs. Limited Set-up Company

Sole Trader

+ Easier to set-up and shut down
– Unlimited liability
+ CRO filings not required (although trading name can easily be registered)
– Taxed on profits (not drawings)
+ Yearly Income Tax Return only
+ Financial Statements more simple
– More difficult to get credit
– May be less credible
– Strict limits on pension and investments

Limited Company

– More paperwork (and cost) to set-up and shut down
+ Limited liability
– Annual CRO filings and RBO to be kept up-to-date
+ Taxed on salary (not profit)
– Yearly Income Tax and Corporation Tax Returns
– Statutory accounts required
+ Better access to credit
+ More credible
+ Better options for retirement planning

man with calculator and laptop

VAT

VAT is paid on goods and services in Ireland. You may be required to register for VAT if you meet certain criteria, no matter whether you are a Sole Trader or Limited Company. If you are registered, then you charge VAT on everything. You then complete VAT returns to pass this payment on to Revenue. You can claim back the VAT on purchases.

If you are trading with other EU countries, you will need to understand intra-community VAT and reverse-charging.

Set-up and Accounting Fees

You may need help to set up a Limited Company.

In terms of ongoing accountancy fees, it will usually be more expensive to operate as a Limited Company, because the accounting requirements are more complex. Please see our services and current fee list here.

two business men in meeting

Limited Company Accounts

1,200.00 + vat

  • Year End Accounts (unaudited)
  • B1 Annual Return (CRO)
  • Corporation Tax Return & Filing
  • For turnovers less than €100,000

Sole Trader Accounts

850.00 + vat

  • Year End Accounts (unaudited)
  • Income Tax Return
  • Turnovers less than €100,000

Switching from sole trader to a limited company

If you decide to initially start your business journey as a sole trader, you can of course always make the switch to a limited company when you feel the time is right to do so. Should you require any assistance or further details about transitioning from a sole trader to a limited company, book a free consultation with our expert team TODAY.

Did you know?

Your Local Enterprise Office provides a range of complimentary support to people in business. Whether you are embarking on a new venture or wish to grow an existing business, your Local Enterprise Office can assist you with their offerings of advice, support, courses, workshops, guides and lessons. For further details, click the link below.

Becoming Self Employed

We also have a Guide that covers all of the details you need, to start working as a self-employed person in Ireland.

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