Many may be fortunate to work for themselves. It has its advantages, allowing sole traders to make executive decisions around working hours and profits. In Ireland, some advantages may include:
1. No requirement to file annual returns with the CRO.
2. Setting up is cheap and easy.
3. Very little cost involved when closing the business down.
However, every coin has two sides. Sole Traders need to be weary of their obligations and requirements when conducting business. For example, there is no limit to financial liabilities, including tax, a Sole Trader could be subject to. This means, in the case of bad debt and tax owed, the Sole Trader is liable with no protection from creditors.
Profits however, may be taxed at personal rates. This could be as high as 52% of a Traders earnings. To clarify, a Sole Trader would be liable to PAYE, PRSI and USC on these profits. Another done side is, a Sole Traders entitlement to Tax Credits. Like all PAYE workers, Sole Traders are entitled to a personal credit of €1650 and an earned income credit of €950 only. PAYE workers would be entitled to €3300 in total, while Sole Traders are only entitled to €2600 as of 2017, rising to €2800 in 2018.
Another downside is a Traders credibility when tendering for contracts. An LTD may provide more certainty in its ability to function in the long term. It’s financial accounts are also open for review. This would make it much harder for Traders to win a contract, despite their ability to complete a contract. Many require financial security when awarding a contract, something a sole trader may not have.
With this information, it is at the Sole Traders risk to continue or set up an LTD. Each of course are both with there benefits and disadvantages. The decision to choose either is not a decision to be taken lightly. The decision to choose either must be carefully considered before proceeding. Remember, there is always someone who can advise on the best solution possible.