Starting a business can be an exciting time. However, it can also be stressful. We often get asked by our clients questions regarding starting a business in Ireland. We decided to create this article to answer some of the most common questions we get asked.
Is it better to be a Sole Trader or a Limited Company?
This depends on you and your business. There are pros and cons to each structure and the decision will usually depend on your business idea and how much revenue you think you’ll make.
Sole Trader and Limited Companies are two of the most common business structures in Ireland. If you’re just starting out, you may be wondering what is the best option for you.
We have helped hundreds of businesses on their business journey, so we have a lot of experience with this decision.
In this article, we will help you figure out the best structure for your business. At the end of the day, it is a personal choice, but you may favour one structure over another when you hear about the differences in tax and personal liability.
Advantages and disadvantages of Limited Company vs Sole Trader
One of the biggest differences is that Sole Traders are personally liable to the debts of the business. Personal assets, such as your house and car, can potentially be used to pay your creditors.
On the other hand, Limited Companies are separate legal entities. This means that your potential creditors can only claim against your company’s assets.
Setting up as a Limited Company can be more expensive and can be slightly more time-consuming. But there is also more security around your personal assets, it can provide more credibility in your industry and there are more tax incentives.
Advantages of Sole Trader
- Simple to set up & shut down
- Less legal filings compared to a Limited Company
- You don’t have to prepare financial statements
- More privacy than a company – your financial details are not visible to the public
Disadvantages of Sole Trader
- There is no legal difference between you and your business
- Unlimited liability – your personal assets can be used to settle debts
- You may still need to register a business name with the Companies Registration Office
- All your earnings (minus expenses) are taxed as your income, which can mean a tax rate of up to 55%
- Limited scope for tax planning
- You still need to prepare a tax return each year
- You may lose out on some contracts that only work with Limited Companies
- Decreased likelihood of receiving credit or access to grants
Advantages of a Limited Company
- Profits (after expenses) are taxed at 12.5% (Corporation Tax)
- Setting up a separate legal entity – you can appoint yourself as a director and shareholder
- Limited liability – your personal assets generally can’t be used to settle the debts of the company
- More tax reliefs and benefits for directors – e.g. access to €500 tax-free vouchers
- Great scope for financial and salary planning – e.g. pensions
- More credibility in the industry
- Increased eligibility for government schemes and grants
- More likely to be approved for credit
- More options for exit planning and succession
- Partial protection over company name
Disadvantages of Limited Company
- More corporate filings and deadlines
- Public have access to the company’s financial accounts
- Large fines and penalties for non-compliance
- Longer and more expensive to set up and close down
- Directors have fiduciary duties – legal obligations to act in the best interest of the company
- If you sell shares in your company, you may lose a portion of your ownership
Learn more about choosing a Sole Trader or Limited Company.
So you might still be wondering if it is better to be a Sole Trader or a Limited Company in Ireland. If you would like professional guidance, contact our team today.
How do I register my business as a Sole Trader in Ireland?
Sole Traders need to register as self-employed with Revenue. Limited Companies need to register for corporation tax with Revenue. Both business structures pay tax to Revenue but the type of tax depends on their activities. Check out our post guide to being self-employed in Ireland if you want to become a sole trader.
Both business structures can register for Value Added Tax (VAT), Relevant Contracts Tax (RCT), and employers taxes, but you may not need to do this straight away.
Tax registration is an essential part of starting a business, and it can be confusing if you don’t know what taxes you need to register for. Registering for taxes also means your business needs to file tax returns to Revenue each year.
Registering with the Companies Registration Office (CRO)
Sole Traders need to register with the CRO if they want to trade under a different name than their own (check out our post on how to register a business Name in Ireland).
For example, Mary O’Brien can start a business called Mary O’Brien without registering with the CRO. But if she wants to use O’Brien Consultancy as her business name, she needs to register that name with the CRO.
The CRO plays a bigger role in Limited Companies than Sole Traders. All companies need to be registered with the CRO and any changes in any Irish company need to be submitted to them.
In general, it takes the CRO one week to process applications for new companies so it’s a good idea to outsource company formation to a professional. There are certain documents you need before you can start a Limited Company in Ireland.
If you need expert advice on how to set up a business in Ireland, get in touch today and we’ll happily talk you through it.
Do I need an Accountant?
Very early-stage business owners don’t usually hire an accountant in their first few months. If you only have a few transactions, the costs of hiring an accountant probably outweigh the benefits.
But that doesn’t mean you don’t need to do the bookkeeping at all. It’s very important that you keep organised records of all your transactions – e.g. receipts, invoices, and bank statements, and follow a proper bookkeeping process.
We always recommend that our clients use online accounting software as soon as your business is set up. We love Xero bookkeeping and recommend it to all our clients. It’s easy to use for beginners, can integrate with other software like Shopify and Stripe, and it will help you to run an efficient business.
Online accounting software also makes bank reconciliations easier – which can be a very time-consuming task, and it helps you to have more control over your finances. Talk to our Client Services Team about our accounting services that include a free subscription to Xero – we’re always here to recommend the best services for your needs.
Do all businesses need to file tax returns?
Yes, all businesses need to file tax returns in Ireland, even if that business is not trading or making a profit yet.
If you don’t know how to file tax returns, you should outsource this to a professional. Failure to submit tax returns could lead to fines and penalties.
We have seen many businesses get caught out for not filing tax returns because they have not made a profit. This means they owed money to Revenue in interest and fines even though the business wasn’t making any money.
Don’t let this happen to you! Get in touch with our team to learn more about what you should expect from starting a business in Ireland.
Do I need an Irish business bank account?
It’s best practice to have a business bank account but it doesn’t necessarily have to be in Ireland. If you’re not a resident in Ireland, it may be difficult for you to open a bank account here. Most banks require at least one face-to-face meeting. Irish banks also require evidence or proof of an economic link to Ireland, such as employing staff in Ireland or shareholders or Directors living in Ireland.
If you want to open a bank account in your resident state (not Ireland), you may need to get your company documents apostilled first. These company documents include the certificate of incorporation, share certificates, and company register.
Setting up a business in Ireland
The first step in starting your business is to get your business registered.
Whether you decide to start as a Sole Trader or Limited Company, you need to start legally operating as a business before you invoice clients. It’s an exciting time for you so we understand the importance of understanding every aspect before committing to starting a business in Ireland.
Talk to our Client Services about your situation and we can recommend the best services to suit your needs. Call us on +353 (0) 21 242 7950 or email [email protected]
Book A Free Consultation
Are you looking for professional help? aperio is a Cork-based outsourced accounting and consulting company that can take care of all your company formation, bookkeeping, management accounting, financial compliance, and financial project work such as grant applications. Book a FREE Consultation today.