Accounting & Taxation Services
A Sole Trader business is a frequently used and one of the simplest types of business concerns to run. The sole trader is owned and controlled by one person.
The characteristics of a Sole Trader, generally means that the Sole Trader provides or raises the capital for his/her firm, he/she makes all the decisions and is personally liable for all legal actions and debts. His/her liability is unlimited; if the business fails, debtors can call upon his/her private assets and even the family home. The profits, however that the Sole Trader makes belongs solely to the individual. It is effectively his/her salary as well as the interest on his/her capital (assuming the business is making profits). A sole trader who uses a name other than their own must register this name with the CRO.
Running a business as a Sole Trader has fewer legal formalities and compliance requirements compared to other structures such as limited companies for example. The main advantages of being a Sole Trader are:
Decisions are made by the business owner.
Business Expenses which are incurred in running the business are allowable deductions against profits.
All profits are kept by the owner - there is no disbursement
ASole Trader is not required to file an annual return and accounts each year with the CRO as in the case of a limited company. This should not be confused, however with the Sole Traders obligation to file a tax return each year.
As a result of this accounting Fees for a sole trader are usually less than for a comparable limited company
Running a business as a Sole Trader means that the business owner is fully liable for all debts of the company at all times and also on business cessation should there be debts outstanding. The benefit of limited liability, as in the case of owners of a limited company does not apply.
It is often more difficult for Sole Trader business's to attract investment and raise finance from institutions. Where Finance, Grants etc are obtained there may be a requirement for a limited company.
Incorporating a company (i.e. when you form a limited company) you actually create a separate legal entity that is distinct from that of the company directors, shareholders and other officers.
The creation of this entity is one of the best ways to protect a business owner from personal liability. Shareholders of a limited company are generally not liable for the obligations of the company. Creditors of a limited company may seek payment from the assets of the company, but not the assets of the shareholders. This means that business owners may engage in business without risking their homes or other personal property.
LIMITED COMPANY – SOME ADVANTAGES
Limited liability - in general, shareholders are only liable to lose the share capital they subscribe.
Pension contributions can be made at the Company's expense.
Raising finance can be less difficult.
There can be many owners of the business.
LIMITED COMPANY – SOME DISADVANTAGES
Limited liability may be neutralised as lenders, in practice may seek personal guarantees.
Legislative requirements may be costly and time consuming.
The need to prepare and file audited accounts with the Companies Registration Office.
There are surcharges on undistibuted investment incomes.
Summary Table
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Sole Trader |
Limited Company |
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Set up cost |
Free to set up with Revenue Commissioners |
Free with Revenue Commissioners but about €300 - €500 to set up company with CRO |
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Annual Fees |
NONE |
CRO fee €20/40 (companies office) |
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Annual Returns |
Form 11 Return to Revenue(income tax return) |
CT1 return (Corporation Tax)And B1 to CRO Form 11 returns for directors also. |
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Tax rates |
Similar to PAYE but you lose your PAYE tax credit, profit €32800 at 20% with balance at 41% |
Corporation tax rate 12.5% Director’s salary at PAYE levels with no PAYE tax credit. |
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PRSI Rates |
4% with a minimum of €500 |
No PRSI on profits, PRSI on directors pay at 4% |
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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. |
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Accounting Fees |
Anywhere from €300 plus VAT, depending on size |
Starting at €750 plus VAT. Audit required if company misses annual return and this is expensive. |
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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). |
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Liability for debts |
Unlimited – your personal assets can be used/drawn on to pay debts of the business |
Limited to the company only. |
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Succession of Business |
Business ceases with death of owner |
Shares can be passed / sold on so business does not cease. |
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Cessation |
Simple to cease business and free with Revenue. |
More Expensive to cease business with CRO |
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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. |
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Access to funds |
Difficult |
Limited company status can be looked upon favourably by banks. |
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Taxation Planning |
Taxed at 20% & 41% tax rates on full profits |
Tax on directors wages at 20% and 41% with company profit taxed at 12.5% |
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Pension Planning |
Some scope |
Greater scope for pension planning |
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Unit 9D, Cúirt na dTonnta, Miltown Malbay, Co.Clare, V95 Y002.
P: 065 707 9901 M: 087 961 8918 F: 065 707 9901 E: michael@mnac.ie
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