Should you go Limited?

Are you a sole trader considering the move to a limited company? Lots of businesses start out as sole traders and then decide to make the jump into a limited company.

Making the switch can bring significant benefits—from potential tax savings to increased credibility—but it also comes with added responsibilities and important decisions. In this article, we’ll walk you through the key considerations when converting your sole trade to a limited company including the tax implications and the essential administrative steps you’ll need to take to ensure a smooth transition. Whether you're looking to grow your business or protect your personal assets, understanding the ins and outs of incorporation is vital.

 

How do I make the choice to go limited?

At what point does going limited actually become beneficial? Here are some questions do you need to ask yourself before taking the plunge:

 

1. Does my sole trade make more than I need to live on i.e. are there profits left in the business?

The first key issue to look at is the amount of money you are taking out of the business at the moment. As a general rule of thumb, unless you are taking out significantly less than the profits of your business,
incorporating is not going to give rise to a tax benefit. So for example, if your sole trade makes €60,000 a year but you need all of that €60,000 and intend to take it as salary in the new company, then incorporating will most likely not give rise to any significant tax benefit.

 

2. At this stage in my life do I need to have quick access to my money?

If you do not need all of your sole trade profits to cover your personal outgoings, then your next step should be to consider if you would be happy to leave these profits to sit in a company or perhaps within a pension fund.

Both of these moves could provide tax benefits, however you will have somewhat limited your access to your funds.

 

3. Can I deal with the increased paperwork, deadlines and costs of having a limited company?

Another crucial thing to bear in mind is the additional administration and burden of operating a limited company, for example increased professional fees. Depending on your situation, these factors may outweigh the benefits of a limited company.

 

What are the tax implications of incorporating

It’s essential to understand the full tax picture before making the move. Here we break down the key tax considerations to help you plan effectively:

 

1. Capital Gains Tax (CGT)

The transfer of the business assets to a company by a sole trader will be a chargeable event for CGT purposes. However this CGT can be deferred, provided all the assets (other than cash) are transferred in consideration for shares.

There are a couple of key conditions for the relief to apply that you should discuss with your accountant. For example, the relief applies only if the transfer is made for bona fide commercial reasons and not as part of a tax avoidance scheme.

 

2. Income Tax

The transfer of assets to a limited company can trigger what’s referred to as a “balancing adjustment” on the sole trader. This “balancing adjustment” can have a potential tax charge of up to 55%. You will need to seek professional advice to help reduce this charge.

This occurs where plant and equipment, on which allowances were claimed, are transferred to the company and there is a difference between market value and tax written down value.

 

3. VAT

The new company is regarded as a separate entity for VAT purposes from the sole trade. If the entire business is transferred as a going concern then VAT Transfer of Relief should apply with respect to the transfer of the trade into the limited company. Therefore VAT registration application for the new company should be submitted to Revenue, as soon as possible.

Ensure all future sales invoices are raised under the new company letterhead and the correct VAT number is attached. Ensure all purchase invoices are made out to the new limited company for VAT deduction purposes.

 

4. Stamp Duty

There may also be stamp duty implications, you should discuss same with your accountant to help minimise these. Broadly speaking, subject to certain conditions, Stamp Duty relief may be available here.

 

Other considerations of incorporating

Other things to take into account when going limited include the administrations tasks involved, what it means to become a director of a limited company and how you need to manage the transition for your staff:

 

1. Setting up the company

You will need to incorporate the new company with the Companies Registration Office (CRO). You will then need to register the new company for taxes, i.e. Corporation Tax and VAT.  You can read more about setting up the company in our Start-up Guide here. 

 

2. Becoming a director

When you incorporate you will become a director with added responsibilities. Many people spend a lot of time getting their limited company and other operations set up but often neglect to ask some of the most important questions around how they can get paid, extract money from the company, their responsibilities, and how they are taxed as a director. For example, directors of Irish incorporated companies are chargeable to tax in Ireland on income from their office, regardless of their tax residence, unless relieved under a Double Tax Agreement. There are many questions to ask yourself before you become a director. Read more about becoming a company director in Ireland in our Directors’ Series here.

 

3. Watch your filing deadlines

As a director of the company you will be obliged to return annual financial statements to the companies registration office by a specific date referred to as an Annual Return Date (ARD). It’s important that you meet this filing date, if your accounts are late the company will incur late filing fees and consideration will also be required as to the impact on loss of audit exemption.

There are also certain beneficial ownership registration requirements with the Register of Beneficial Ownership (RBO).

Your company will also be obliged to file an annual corporation tax return (known as Form CT1) with Revenue detailing the profits of the company and making the relevant payment.

 

4. Bank accounts

You will need to close bank accounts pertaining to the sole trade and open a new account in the name of the new limited company. Update any standing orders/direct debits you have in place for the new account details.

 

5. Staff

If you employ staff in your sole trade these staff will need to be transferred over to the limited company. You will need to ensure you issue each employee with a contract of employment under the limited company, cease the employment for each employee in the sole trade and register them with Revenue under the new limited company.

The employees have entitlement to certain notice periods here. As such, it is important that there is timely engagement with the staff.

 

6. Surcharges

There are two surcharges that are very important to be aware of if you are thinking of forming a limited company, namely the close companies surcharge and the professional services surcharge.

These surcharges are very often forgotten at the outset and they may well significantly reduce any tax savings you make in forming the limited company so it is important to figure out if they will apply to you.

In broad terms, the close company surcharge applies to undistributed investment and rental income.

The professional company surcharge applies to undistributed trading income of professional service companies such as tax consultants and architects.

 

Advantages of Going Limited

Many sole traders decide to incorporate their business as it can open the door to a range of financial and strategic benefits. Limited liability protection safeguards your personal assets, and you may get to improved credibility and easier access to funding.

Going limited may may also unlock valuable tax savings—including a lower corporation tax rate—and qualify for start-up tax relief.

You can read our full article on the advantages and disadvantage of going limited here.

 

Appointing an Accountant

As a sole trader, managing your accounts may have been relatively straightforward, and maybe you handles your own bookkeeping and tax returns. However, once you incorporate as a limited company, the financial and legal responsibilities become more complex. You’ll be required to prepare formal annual accounts, file corporation tax returns, and meet stricter compliance obligations with Revenue and the Companies Registration Office (CRO), as outlined above. For these reasons, we strongly recommended to engage a qualified accountant to ensure everything is done correctly and on time.

At TaxAssist we offer a full accounting service for limited companies including Corporation Tax Returns, VAT Returns, CRO obligations, payroll, bookkeeping and more. Contact us today to book an initial consultation with your local accountant to discuss your needs and receive a quote.

 

 

First published 28 Apr 2015 | Last updated 28 May 2025

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This article is intended to inform rather than advise and is based on legislation and practice at the time. Taxpayer’s circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this article, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.

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