Sole Trader or Limited Company

By Jason McDowell, owner of McDowell & Co Accountants

Limited Company Or Sole TraderMore and more people are finding themselves in a position where they want to start their own business. The recession has forced this on those who have been made redundant or simply cannot find a job through the PAYE system.
Having gone through the situation myself, I can honestly say the rewards of running your own business do far out way the security of being in paid employment.

But it isn’t easy. There are many issues to understand and hurdles to overcome with setting up your own business. As well as getting a grasp of the tax system in Ireland, managing cash flow, and trying to be an expert in IT, HR, Marketing, Accounting etc., you will also have the choice at some stage of whether you should operate as a sole trader or a limited company.

In this post I have outlined a simple table to show the differences between the two, which lets you decide what option might be best for your business.

Sole Trader Limited Company
Set up cost Free to set up with Revenue Commissioners Free with Revenue Commissioners but about €300 to set up company with CRO
Annual Fees n/a CRO fee €20/40 (companies office)
Annual Returns Form 11 Return to Revenue(income tax return) CT1 return (Corporation Tax)And B1 to CROForm 11 returns for directors also.
Tax rates Similar to PAYE but you lose your PAYE tax creditI.e. profit €32800 at 20% with balance at 41% Corporation tax rate 12.5% (10% for manufacturing).Director’s salary at PAYE levels with no PAYE tax credit.
PRSI Rates 4% with a minimum of €253 No PRSI on profitsPRSI on directors pay at 4%
Taxable Expenses All costs must be fully receipted for example motor costs, travel etc. Director’s claims for travel, accommodation and subsistence completed through vouched expense claims.This is tax free to the director.
Accounting Fees Anywhere from €375- €1,000 plus VAT. Starting at €750 plus VAT.Audit required if company misses annual return and this is expensive.
Employer If it is just yourself then there is no need to register as an employer Directors are employees so you must register and file P30 / P35s etc. (extra cost).
Liability for debts Unlimited – your personal assets can be Limited to the company only.
Succession of Business Business ceases with death of owner Shares can be passed / sold on so business does not cease.
Cessation Simple to cease business and free with Revenue. Expensive to cease business with CRO
Disclosure of Accounts Public does not get to see accounts as they are filed with Revenue. Public can access summary accounts if the pay small fee with CRO.
Access to funds Difficult Limited company status can be looked upon favourably by banks.

To conclude, sole trader route is the cheapest route but it may not be the best! You can however, take this route initially and then when it makes more sense go down the route of forming a limited company.

About The AuthorJason McDowellJason McDowell is the owner of McDowell & Co Accountants. He qualified with the Chartered Association of Management Accounts in 1999. Jason has worked in the UK with the Allied Domecq group within the Management Accounting function before joining the Arjo group in Dublin operating in Financial Accounting. He was controller with the Magee group and operated in the costing are with Abbott Ireland. Jason opened his own practice in Sligo in 2005 and now operated his offices from Quay St in the centre of Sligo. McDowell & Co Accountants are available online at or on Facebook and Twitter.
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    I am 30 years old. Currently working part time with ELC. Looking for a full time job with a better wage. Haven’t been able to get up the job ladder in 15 years. So exploring other routes. Have always had aspirations in the near future to set up 2 businesses one in education in tuition, the other in Spa/retail Health And well Being. With the idea of protecting names, placing both at in dormant till I’m ready. But not sure if I’ve actually taken on too much. In anticipation I just wanted to protect my business names and the domain names for these. So far 2 weeks I spoke to a formation company where I was advised to set up a limited company as best option and place in dormant. Which I just recently received paper copy of. But being new to this however just concerned whether I’ve actually made the right choice. Being new to this, really not sure which is most suitable or based on the type of business which it needs to be. Not sure whether registering as a limited company is really needed when starting off. Also the red tape with limited now makes me very daunted. I don’t want to be liable to anyone only myself. Maybe at a later stage I might need others to work with me but not sure whether this option is too ahead for me and I want to know now, to avoid any further costs, admin which they can rake under this etc. what I’m really looking for is to be my own boss with the flexibility, which the sole trader seems to have. But want to protect the names? And in those types of fields, tuition yes, but to run your own spa/retail shop under sole trader would sill apply not sure. I just really wanted to protect my business names and domain names that’s all. So I can sew my own seeds for the near future. And kind of feel partly have I got off on the wrong footing. Can the business names actually not be protected unless its a registered trademark. Did I make the wrong choice for me? I’m just starting off. want to learn everything but don’t want to get bogged down. And trying to get unbiased advice is hard. When company formation businesses also have to push on their sales.

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