Q: I’ve been operating as a sole trader for nearly three years now. While I haven’t stumbled across the next Facebook, business has grown steadily – my main challenge is keeping on top of my workload rather than drumming up new business.

At the outset, I decided against setting up a limited company to save on my initial outlay and to avoid annual accountancy fees. Now that the business idea has a proven future, I’m thinking about the optimal set-up from a tax and debt exposure point of view. When is the best time to set up as a limited company? Should I wait until I’m taking on debt or trade credit on a daily basis? And how complicated is it to move from sole trader to a limited company.


A: Firstly, it’s worth noting that you’re not the only one in this situation: many entrepreneurs will start out as a sole trader or a partnership, especially when cash is so tight in the first few months.

There’s no easy answer to decide on the ideal time for changing to a limited company set-up: a lot depends on your circumstances. Two specific questions spring to mind: firstly, can cash-flow support paying yourself a wage you’re happy with while also managing the tax and PRSI on a month-to-month basis? Secondly, if the business shut its doors overnight, would you struggle to settle up with every creditor out of your own pocket? If you answered ‘yes’ to either question, then you should give the benefits of limited incorporation (a limited exposure to debts, and tax-efficient pension options) serious thought.

Incorporating itself is a pretty straightforward process: you simply form the company from scratch, with a shareholding distribution that suits you, and have it purchase any assets that you need to run the business from you or your partner. Most companies will buy these assets for a nominal fee of one euro, but others choose to use this as a tax-efficient way to reward the business partners for their hard work – depending on the approach you take, you may have to pay Capital Gains Tax.

In any case, if you’re worried about accountancy fees, it’s a good idea to run the books as efficiently as possible for annual returns and the other necessary paperwork – if an accountant doesn’t need to spend hours making sense of the books, that will cut down the bill. Any reputable accountant should be happy to give you advice in this area, letting you get set up with a system that you can manage yourself to minimise their workload. You’re always welcome to set up an initial, no obligation with us to talk through the process, find out if going limited is right for you at this moment in time, and the best way to reduce the fees that you pay – just contact us to get the ball rolling.


Declan Dolan

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