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The sole trader vs limited company question gets settled in Irish pubs with one number: 12.5%. A plumber hears that companies pay 12.5% corporation tax. He pays 40% on everything over €44,000. So the maths seems to do itself, but it does not. The 12.5% rate applies only to profit that stays in the company. The moment the plumber takes it out to live on, it is taxed again in his hands. Those are exactly the rates he was trying to escape.
In practice, the operator consequence is a decision made for the wrong reason, then paid for in both directions. Incorporate at €60,000 of profit that you need every cent of, and you gain nothing but cost. There is an accountant’s corporate fee and a CRO filing calendar, yet no tax saving at all. Stay a sole trader at €150,000 when you only draw €70,000, and the opposite happens. You hand Revenue roughly half of the surplus every year, for no reason but habit. A structure is a tool with one specific job, and most contractors never check whether they have that job.
Sole trader vs limited company: the myths and what is actually true
| The myth | The reality |
|---|---|
| A company pays 12.5% tax, so I will pay 12.5% tax | The company pays 12.5% on trading profit it keeps. Salary to you is taxed at 20% and 40% plus USC and PRSI. Dividends are taxed as income too, with no credit for the corporation tax already paid. So the saving only exists on profit you leave inside |
| A limited company protects my house | Limited liability protects you from the company’s contract debts. It does not protect you from a personal guarantee on a van loan or trade account. Nor does it cover your own negligence on site, or your directors’ duties under the Companies Act 2014 |
| Main contractors take a Ltd more seriously | A principal checks your RCT rate and your tax clearance, not your suffix. A sole trader on 0% RCT is a better subcontractor on paper than a company on 35% |
| Setting up a company costs thousands | The CRO charges €50 to incorporate online through CORE and €20 for the annual return. The real cost is the ongoing accounting, typically several thousand euro a year for a small trading company |
| Being a sole trader is the simple option, so there is nothing to do | You still register with Revenue through ROS and file a Form 11 every year. You register a business name if you trade under anything but your own. And you carry unlimited personal liability the whole time |
| I can switch back easily if it does not work | Unwinding a company means transferring assets, contracts, insurance and RCT registration, then winding it up or striking it off. It is possible; it is not easy |
What each structure really costs to run
Running costs are the part of the sole trader vs limited company comparison that nobody prices. As a sole trader you and the business are the same person. You register for income tax through ROS and file a Form 11 by 31 October each year. Then you pay income tax, USC and Class S PRSI on the whole profit, whether or not you spent it. The USC on self-employed income above €100,000 carries a 3% surcharge, so the top band is 11% rather than 8%. The €2,000 earned income credit does the work the PAYE credit does for employees. Setup is a ROS registration and, if needed, a €20 business name filing.
A limited company is a separate legal person. Incorporation is a €50 online filing with the Companies Registration Office. However, it brings a constitution, a company secretary and at least one director resident in the EEA, or a bond in place of one. Every director also needs a PPS number or a verified identity. The first annual return is due six months after incorporation, with no accounts attached. Every one after that carries financial statements. A late return costs €100 plus €3 a day and can cost the audit exemption. The company registers separately with Revenue for corporation tax and for PAYE, because you become its employee.
The Limerick plumber who ran the sole trader vs limited company sums
A plumber in Limerick nets €95,000 after expenses and materials. She takes €60,000 to live on. The balance has been sitting in the business current account, earmarked for a second van and an apprentice. As a sole trader, the full €95,000 is taxed in her hands this year. The top €51,000 lands at the higher rate, plus USC and PRSI. Incorporated, she pays herself €60,000 through payroll, and the company pays 12.5% on the €35,000 it retains. The difference on that retained slice is several thousand euro a year. That is before she looks at employer pension contributions, which a company can make for a director with no benefit-in-kind charge.
Now change one number. If she needs the full €95,000 to live on, everything comes out as salary. The company’s corporation tax bill is then close to nil, and her personal tax is roughly what it was. She has added a corporate accountant’s fee for nothing. The sole trader vs limited company answer was never about her trade or her turnover. It was about the gap between what the business earns and what she takes out. Above all, it was about whether she can see that gap before October.
The two questions that actually decide it
The first question is arithmetic. After paying yourself what you genuinely need, is there a surplus of at least €25,000 to €30,000 a year that could stay in the business? Below that, the corporate fees eat the saving and the extra filings eat your evenings. Above it, incorporation starts to pay for itself, and the pension lever makes it pay faster.
The second question is about exposure. Perhaps you employ people, sign contracts with penalty clauses, or work on projects where a defect claim could exceed your insurance. If so, limited liability has a value of its own. It does not replace public liability cover, and it does not survive a personal guarantee. But it does stop a bad contract from reaching your home. Operators who track invoiced, paid and outstanding totals by month can answer the first question any week of the year. SendWork keeps that job-and-payment history in one record, so the profit-versus-draw gap is a number rather than a feeling.
Sole trader vs limited company: the plainspoken conclusion
Incorporate when the business consistently earns more than you need to take out. Incorporate too when the liability you carry has outgrown your insurance. Do not incorporate because of a pub number, an accountant’s passing remark, or a belief that principals prefer it. Stay a sole trader while the surplus is small, and keep the money in your own hands. Then revisit the sole trader vs limited company question every spring with real figures.
Corporation tax rates, close company rules and the treatment of director salaries and dividends are set out by the Revenue Commissioners. Incorporation and annual return requirements sit with the Companies Registration Office. Whichever structure you choose, the money you set aside for Revenue is the same problem in both. That is why the preliminary tax timing rules deserve a read before the structure question is closed.
What can wait is the salary-versus-dividend fine-tuning, which is a yearly conversation with an accountant. What cannot wait is knowing, this month, whether your business earns more than you do.
ON THE 12.5% THAT NEVER REACHED YOU
Structure follows the surplus. First you have to be able to see it.
Whether a company pays off comes down to one figure: what the business earns beyond what you take out. Most contractors only learn it when the accountant closes the year. SendWork keeps quotes, jobs, invoices and payments in one place. So that figure is built by the work as it happens.
More Ireland business admin and tax guides for contractors →
