Setting up as a Sole Trader is one of the most common business structures in Ireland. It involves setting up a business in your own name, and you will be personally liable to pay any debts of the business.
What is a Sole Trader:
A Sole Trader is an individual who runs their own business as an individual. The individual is responsible for all aspects of the business and is personally liable for any debts the business may incur.
This guide will take you through the process of setting up as a Sole Trader in Ireland, including the requirements, registration process, and compliance with Revenue and the Companies Registration Office (CRO).
A step by Step Checklist for Setting up as a Sole Trader in Ireland
Step 1: Business Plan
Crafting a business plan is vital for any business, regardless of its size. Your business strategy should outline how you plan to achieve your business goals, satisfy customers, and maintain a competitive edge.
If you have aspirations to expand your Sole Trader business in the future, you should contemplate what that implies for your business structure. You can always transition from a Sole Trader to a Limited Company at a later stage.
A business plan should include a detailed description of your business, the services or products you offer, your target market, your marketing and sales strategy, and financial projections.
It’s also crucial to include a SWOT analysis (Strengths, Weaknesses, Opportunities, and Threats) to identify potential challenges and opportunities for your business.
Step 2: Understanding Tax Implications
Everything you earn as a Sole Trader is essentially your income, and that income is subject to tax up to 55%. You can deduct any expenses that are directly related to your business, which will save on your tax bill.
If you are earning more money as a Sole Trader than you need as a salary, you should consider setting up a Limited Company.
There are more tax-efficient ways to pay yourself as a director of a Limited Company.
As a Sole Trader, you will be required to pay income tax, PRSI, and the Universal Social Charge under the self-assessment system. You will also need to pay Preliminary Tax, an estimate of the tax due, on or before 31st October each year. If your annual turnover exceeds certain limits, you will need to register for Value Added Tax (VAT). If you are employing people, you must register as an employer and operate payroll.
If you are a principal contractor, you will need to pay Relevant Contracts Tax (RCT).
Step 3: Personal Public Service Number (PPSN)
A PPSN is a unique reference number that helps you access social welfare benefits, public services, and information in Ireland. Everyone living in Ireland should already have a PPSN. To get a PPSN, you have to show that you have a need for it.
Your Sole Trader income tax registration in Ireland can be used as evidence of this. If you have just moved to Ireland and don’t have a PPSN yet, you should visit your local Welfare office to apply for one.
This is a necessary step because you need to be a resident in Ireland to be a Sole Trader.
Step 4: Register for Income Tax
To register as a Sole Trader in Ireland, you need to register for Income Tax through Revenue’s eRegistration service or through a Tax Registration Form (TR1). Your Tax Reference Number (TRN) will be the same as your PPSN, but please note that your PPSN does not become your TRN until you register for tax.
If you already have an existing PPSN and you are registered for ROS / MyAccount you will usually get your TRN within 5 days. Ifyou have only recently received your PPSN, you will have to submit the TR1, which can take 2-3 weeks to process.
Step 5: Understand Your Tax Obligations
As a Sole Trader, you must pay Preliminary tax on or before 31st October each year. This is essentially an advance payment on next year’s tax bill – i.e., tax on the income not yet earned.
Make sure that over the year, you save for your Income Tax bill AND your Preliminary Tax liability. You will also need to register for VAT if your business meets certain criteria.
You don’t charge VAT or claim VAT back until you are VAT registered, which simplifies the invoicing process. If you are employing people, you must register as an employer and operate payroll.
An employer is responsible for deducting the appropriate PAYE tax, USC, and PRSI from your employees’ wages and maintaining a Payroll Report, which is reported to Revenue on a real-time basis.
Step 6: Register for Revenue Online Service (ROS)
Now that you are tax registered, you can register for ROS, if you are not already registered. ROS allows you to view your current tax position, file tax returns and forms, and pay your tax bill. When you outsource to an accountant, they can take care of your ROS account and ensure that your tax bill is filed on time.
To set up on ROS for the first time, you need to apply for your ROS Access Number (RAN) using your Tax Reference Number (TRN), apply for your Digital Certificate after you get your ROS Access Number (RAN), and save your Digital Certificate. You will not be able to access ROS until you complete this step.
Step 7: Register Your Business Name
The Companies Registration Office (CRO) states that registration of a business name is required if “an individual uses a business name which differs in any way from his/her true surname.” For example, Sole Trader Anne O’Brien needs to register her business name if she traded as O’Brien Apparel but not if she traded as O’Brien or Anne O’Brien.
To register your business name, you must submit a Form RBN1 to the Companies Registration Office (CRO). You will then be issued with a Certificate of Business Name. Keep in mind that someone else can use your business name even if it is registered.
If you want protection around your business name, you should consider setting up as a Limited Company.
Step 8: Open a Business Bank Account
It’s best practice to keep your business income separate from your personal income through a specific business bank account.
To set up a business bank account in Ireland, you will generally need one form of ID verification; e.g., passport or driver’s license, and two forms of address verification of home address in Ireland; e.g., electricity bill or current bank account statement.
Step 9: Get Business Insurance
Sole Traders are personally liable for all the debts of the business. This means that, as a Sole Trader, your personal assets, such as your family home, can be used to settle unpaid business debts.
It’s worth considering business insurance in cases of any misfortunes that could affect your business, such as fire, flood or theft, public, employer, product liability, or business interruption.
Talk to your local insurance branch for more information on the types of cover they offer.
Step 10: Maintain Proper Accounts Records
You must keep accounts which record all purchases and sales of goods and services and all amounts received and all amounts paid out. It’s important that any expense receipts and computations (e.g., mileage) are correctly calculated and recorded so that your tax returns are accurate.
Remember – you only file your tax returns once a year and doing regular bookkeeping will greatly benefit you when it comes time to file your taxes. On top of that, if you are VAT registered, you need to file VAT returns, and your receipts and invoices are also required to calculate how much you owe, and how much you can claim back. Checkout our accounting for small businesses
Step 11: File Income Tax Returns
Finally, when you register as a Sole Trader, you are obliged to file Income Tax Returns before 31 October each year. Note that your first Income Tax return is due the following year after you set up – i.e., if you register as a Sole Trader in Ireland in 2022, your first tax return is due in 2023.
Income Tax Returns are self-assessed, which means that you need to calculate your own tax bill or outsource the requirement to an accountant.
They are required even if you made a loss or your business had minimal trading and any late filings will incur fines and penalties.
Setting up as a Sole Trader is straightforward and relatively quick when compared to setting up a Limited Company.
What are the tax implications for a Sole Trader?
As a Sole Trader, you are required to pay income tax, PRSI, and the Universal Social Charge under the self-assessment system. You may also need to register for VAT if your annual turnover exceeds certain limits.
What is a PPSN and why do I need one?
A PPSN is a unique reference number that helps you access social welfare benefits, public services, and information in Ireland. You need a PPSN to register for income tax as a Sole Trader.
What is the Revenue Online Service (ROS)?
The Revenue Online Service (ROS) is an online platform that allows you to view your current tax position, file tax returns and forms, and pay your tax bill.
What is the process for registering a business name?
To register a business name, you must submit a Form RBN1 to the Companies Registration Office (CRO). You will then be issued with a Certificate of Business Name.
How much does it cost to set up as a sole trader in Ireland?
Setting up as a sole trader in Ireland is relatively inexpensive. The main cost is the registration of your business name with the Companies Registration Office (CRO), which costs €20 for an electronic application or €40 for a paper application. However, there may be additional costs related to setting up your business, such as insurance, equipment, and professional advice.
Do I need to register for VAT as a sole trader in Ireland?
Value-Added Tax (VAT) registration is obligatory when your turnover exceeds, or is likely to exceed, the VAT thresholds. The thresholds depend on your turnover in any continuous 12 month period.
You may choose to register for VAT if your turnover is below a certain threshold.
The main thresholds are:
€37,500 for those supplying services only.
€10,000 for taxable persons making mail-order or intra-Community distance sales of goods and cross-border TBE services into the State.
€41,000 for persons making acquisitions from other EU Member States.
€75,000 for persons supplying goods.
€75,000 for persons supplying both goods and services where 90% or more of the turnover is from the supplies of goods.
The 90% figure does not include goods which you sold at the standard or reduced rates and manufactured or produced from zero-rated materials.
A person, while not established in the State, needs to register and account for VAT if that person supplies taxable goods or services to ‘taxable customers’ in the State, regardless of the level of turnover.
Your turnover figure may exceed the threshold limit, but you may not be required to register for VAT.
For registration purposes, the turnover figure may be reduced by the amount of VAT paid on stock bought for re-sale. This adjusted turnover figure is used only for the purposes of determining your turnover for registration for VAT.
Do I need an accountant as a sole trader?
While it’s not a legal requirement to have an accountant as a sole trader, many sole traders choose to hire one to help with their financial management, tax returns, and legal obligations. An accountant can help you save time, reduce your tax bill, and ensure you’re compliant with all relevant laws and regulations.
Can I pay myself a wage as a sole trader?
As a sole trader in Ireland, you don’t pay yourself a traditional salary. Instead, you take money from the business profits, also known as “drawings”. This is the money left after all business sales and expenses have been accounted for. You can withdraw or transfer funds from the business bank account whenever you want, but you are taxed when the profit is earned, not when the money is withdrawn.
You are required to pay tax under the self-assessment system, and you must register for income tax with Revenue as a self-employed sole trader. Each year, you pay Preliminary Tax (an estimate of tax due) on or before 31 October and make a tax return not later than 31 October of the following year.
As a self-employed individual, you can claim an Earned Income tax credit. In 2020, the credit was €1,500. However, if you also qualify for the PAYE tax credit, the combined value of these two tax credits cannot exceed €1,650.
You must keep proper records of all purchases, sales, amounts received, and amounts paid out, along with supporting documents like invoices, bank statements, and receipts. You can claim certain business expenses against tax, as well as contributions to your personal pension.
If you are a self-employed subcontractor in certain industries, there are additional tax considerations. And as a self-employed individual, you pay Class S PRSI contributions, which entitle you to a limited range of social insurance payments. The contributions are paid at a rate of 4% on all income or €500, whichever is greater. If you earn less than €5,000 from self-employment in a year, you are exempt from paying Class S PRSI but you may pay €500 as a voluntary contributor.
How much tax do I pay if self-employed in Ireland?
As a self-employed individual in Ireland, you are responsible for paying income tax under the self-assessment system once a year. The amount of tax you pay depends on your income.
- You pay Preliminary Tax, which is an estimate of tax due for your current trading year, on or before 31 October each year.
- You also make a tax return for the previous year not later than 31 October.
- For 2023, you can claim an Earned Income Tax Credit of €1,775.
- You must pay the Universal Social Charge (USC) if your gross income is over €13,000 in a year. An extra charge of 3% applies to any self-employed income over €100,000, meaning you pay a total of 11% USC on any income over this amount.
- You also pay Class S PRSI on your income.
- If your annual turnover is more than or is likely to be more than €75,000 for supply of goods or €37,500 for supply of service, you must register for Value Added Tax (VAT).
Remember, these are just the basic requirements. Depending on the nature of your business, there may be additional legal requirements or documents needed.
Can sole traders use personal bank accounts?
While it’s possible for sole traders to use personal bank accounts for their business, it’s generally not recommended.
Mixing personal and business finances can make it difficult to keep track of business expenses and income, which can cause problems when it comes to calculating tax or if your accounts are audited.
It’s usually best to have a separate business bank account.
Do I have to pay tax in my first year of self-employment in Ireland?
Yes, you are required to pay tax in your first year of self-employment in Ireland. However, your first tax return isn’t due until the following year. For example, if you start your business in 2022, your first tax return is due by 31 October 2023.
You will also need to pay Preliminary Tax by 31 October 2023, which is an estimate of the tax you think you will owe for 2023.