Limited Company vs Sole Trader Calculator

The question every growing freelancer asks

At some point a profitable sole trader wonders whether incorporating would cut the tax bill. The honest answer in Ireland is: it depends entirely on whether you spend everything you earn or leave money in the business. This tool runs both structures side by side. As a sole trader you pay income tax, USC and PRSI on every euro of profit at personal rates that top out around 52 percent. As a company you pay corporation tax at 12.5 percent on profit after a deductible salary, then you are taxed personally on the salary and on any dividends you draw out.

Where the company edge comes from, and where it vanishes

The company advantage is real only on profit you do not need to live on. Money left inside the company is taxed once, at 12.5 percent, and can be reinvested or extracted later. But the moment you pull profit out as salary or dividends, it meets the same personal tax rates a sole trader faces. Dividends carry a 25 percent dividend withholding tax at source, though that is credited against your income tax rather than being an extra charge, so it does not double-tax you. The upshot is blunt: extract every euro and the company often lands within a whisker of the sole-trader result, sometimes slightly behind once you count the extra running costs of a company.

€100,000 of profit, taken out in full

Take €100,000 of annual profit for a single person. As a sole trader, income tax after the €2,000 earned income credit, USC including the 3 percent self-employed surcharge over €100,000, and PRSI at 4.1 percent come to about €37,344, leaving €62,656 in hand. As a company drawing a €40,000 salary, corporation tax falls on the remaining €60,000 at 12.5 percent, which is €7,500, leaving €52,500 distributable. The fair comparison takes all of that out, so the verdict below extracts the full €52,500 as dividend on top of the salary.

On full extraction the sole trader keeps roughly €1,593 more, before the company even pays for its annual accounts and filings. The company only pulls ahead if you leave a chunk of that €52,500 inside it. If you took only the €40,000 salary and a €30,000 dividend in the example, about €22,500 of post-tax profit would stay in the company, taxed at just 12.5 percent for now, which is where the real planning value sits.

Beyond the tax line

Tax is not the only reason to incorporate, and often not the main one. A limited company gives limited liability, can look more credible to larger clients, and lets you time when you extract profit across tax years. Against that, a company brings annual returns to the Companies Registration Office, statutory accounts, a separate corporation tax return, and higher accountancy fees. A sole trader simply files Form 11 each year. My practical rule of thumb: if you draw nearly everything you earn and profits are modest, stay a sole trader for simplicity. Once profits comfortably exceed what you spend, or liability worries you, a company starts to earn its keep.

Does this tool include the cost of running a company?

No. It compares tax only. Real company costs, accountancy fees, CRO filings and a possible audit, can run to a few thousand euro a year and should be set against any tax saving before you decide. On a thin margin those costs can erase the benefit entirely.

Can I keep profit in the company forever to avoid personal tax?

Not without consequence. Revenue can apply a close company surcharge on undistributed investment and professional income to discourage indefinite sheltering. Retained trading profit is more flexible, but the long game usually involves extracting it eventually, or paying it into a pension, so plan the exit, not just the deferral.