A sole trader pays income tax, USC and PRSI on all business profit, with the 40% income tax rate starting at €44,000 for a single person in 2026. A limited company pays corporation tax at 12.5% on trading profit, but the owner pays personal tax again on whatever is taken out as salary or dividends. A company usually pays off only when profit is well above what the owner needs to draw, so money can stay in the business.
A sole trader is you, trading in your own name or under a registered business name. If the business fails, your personal assets can be used to pay its debts.
A limited company is a separate legal entity. In general you are not personally responsible for its debts, but a personal guarantee you sign for a bank is still yours.
Register for income tax as a self-employed person through Revenue myAccount or ROS. You need a PPS number, which becomes your tax reference number. Paper Form TR1 is only for people who cannot register online, and you are registered for Class S PRSI automatically.
If you trade under a name other than your own, register the business name with the Companies Registration Office (CRO) within one month of adopting it. The fee is €20 online through CORE or €40 on paper Form RBN1.
Incorporate the company with the CRO on Form A1 through CORE. The CRO fee is €50, and Form A1 can only be filed online (S.I. 329/2025 and the CRO fees page list no paper option).
Next, register the company for corporation tax through ROS eRegistration (paper Form TR2 only where online is not possible), and register as an employer before paying any salary, including your own.
All profit is taxed as your income in the year it is earned, whether you take it out or not. You pay income tax, USC and Class S PRSI through self-assessment.
The Class S rate rose from 4.2% to 4.35% on 1 October 2026. Because a sole trader is assessed on the full year's profit, a blended rate of 4.2375% (or the €650 minimum) applies to 2026 self-employed income. Our post on PRSI rising on 1 October 2026 covers the change. Rates for 2027 should be checked after Budget 2027 (6 October 2026).
Each year you pay preliminary tax and file Form 11 by 31 October. Our guide to Form 11 and preliminary tax has the detail.
Corporation tax is 12.5% on trading income. A 25% rate applies to non-trading income such as rental and investment income, and to income from excepted trades such as dealing in or developing land.
Salary is paid through PAYE and is a deductible cost for the company. A director who controls more than 15% of the share capital is a proprietary director: no Employee Tax Credit on that salary, but the Earned Income Tax Credit of up to €2,000 is available. Proprietary directors are chargeable persons, so each one also files a Form 11 every year.
Many owner-directors pay Class S PRSI through payroll. Where the class is unclear, the PRSI Scope Section of the Department of Social Protection decides.
Dividends come out of after-tax profit and are not deductible. The company deducts Dividend Withholding Tax at 25%, and you get a credit for it against your own tax. The gross dividend is taxed at your marginal rate and is also liable to USC and PRSI, so profit taken out of a company is taxed twice: 12.5% in the company, then personal tax on the rest.
A company owned by a small number of people, such as a family company, is usually a close company. Revenue charges a 20% surcharge on undistributed after-tax investment and rental income, with an exemption where the excess is €2,000 or less.
Close service companies, such as those providing professional services, face a 15% surcharge on half of their undistributed trading income. Distributing within 18 months of the end of the accounting period reduces the surcharge.
Section 486C relief reduces corporation tax on a new company's trade for its first 5 years where total corporation tax for the period is €40,000 or less, with marginal relief between €40,000 and €60,000. The relief is linked to employer's PRSI paid (up to €5,000 per employee or director) and, from 2025, Class S PRSI paid by directors through PAYE (up to €1,000 each).
Revenue's manual says the company must start its qualifying trade on or before 31 December 2026. Check after Budget 2027 (6 October 2026) whether that date is extended.
Two catches: a trade previously carried on by another person (including your own existing sole trade) does not qualify, and nor does a professional services trade.
A sole trader keeps proper books and records, pays preliminary tax and files a Form 11 each year, plus VAT returns if registered.
A company files a CT1 and pays its tax by the 23rd of the ninth month after its year end, and files an annual return with financial statements at the CRO every year. It also runs payroll for director salaries, and each proprietary director files a Form 11.
Most small companies can skip the statutory audit if they meet two of three limits (turnover up to €15 million, balance sheet up to €7.5 million, up to 50 employees) and file on time. See our guides to audit exemption and the CRO annual return deadline.
| Point | Sole trader | Limited company |
|---|---|---|
| Set up | Register with Revenue via myAccount or ROS; business name €20 online if used | Incorporate at the CRO, €50 online; register for corporation tax via ROS |
| Liability | Unlimited, personal assets at risk | Generally limited to the company |
| Tax on profit | Income tax 20% and 40%, USC up to 8%, PRSI 4.2375% for 2026 | 12.5% on trading income, 25% on non-trading income |
| Tax on money taken out | Nothing extra, profit already taxed | Salary through PAYE; dividends with 25% DWT, taxed at your marginal rate |
| Yearly filings | Form 11 by 31 October | CT1, CRO annual return with financial statements, payroll, Form 11 per proprietary director |
| Start-up relief | Not available | Section 486C, up to €40,000 a year for 5 years, conditions apply |
| Raising finance | Personal borrowing only | Can issue shares to investors; banks may want personal guarantees |
| Credibility | Fine for most local trade | Some larger customers prefer a company |
These figures are illustrative. Assumptions: single person, no other income or pension contributions, €90,000 profit, 2026 rates. PRSI is at 4.2375%, which equals 9 months at 4.2% and 3 months at 4.35%. In the company, the owner is a proprietary director on Class S with a €50,000 salary and no start-up relief. Accountancy and CRO costs are ignored.
| Result | Sole trader | Company, retain | Company, pay all out |
|---|---|---|---|
| Corporation tax | €0 | €5,000.00 | €5,000.00 |
| Personal tax | €30,244.37 | €10,351.57 | €27,632.50 |
| Total tax | €30,244.37 | €15,351.57 | €32,632.50 |
| Cash to owner | €59,755.63 | €39,648.43 | €57,367.50 |
| Left in company | None | €35,000.00 | None |
The company saves €14,892.80 this year only on money left inside it, and that money is taxed again when it comes out. If the owner needs the full profit to live on, the sole trader route costs €2,388.13 less, before company running costs. For professional services, the service company surcharge can also apply to retained profit.
The right answer depends on how much you draw, your family position and your plans for the business.
We can model both structures on your own figures and handle the incorporation if a company suits. Book a quick chat or get an online fee quote for your business. See our tax services and company secretarial services.
No. Corporation tax is 12.5% on trading profit, but money you take out is taxed again as salary or dividends. In our €90,000 example, a sole trader paid €30,244 in total tax while a company paying everything out paid €32,633.
There is no fixed profit figure. A company tends to pay off when profit is well above what you need to draw, so you can leave money in the business at 12.5%.
Yes, but the new company will not get section 486C start-up relief on that trade, because you carried it on before. Get advice before you transfer.
Many owner-directors pay Class S PRSI through payroll: 4.2% until 30 September 2026 and 4.35% from 1 October 2026. Whether Class S or Class A applies depends on the director's circumstances.
Usually not. A small company can claim audit exemption if it meets two of three limits (turnover up to €15 million, balance sheet up to €7.5 million, up to 50 employees) and files its annual return on time.
Yes, for a new company that starts a qualifying trade on or before 31 December 2026, according to Revenue's manual. Check after Budget 2027 (6 October 2026) whether the deadline is extended.
Last checked: 3 October 2026. Written by the M.A. Whately team. This guide is general information, not advice for your situation; talk to us before acting on it.
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