"Should I incorporate?" is the single most common strategic question we field. The honest answer is: it depends — but the math isn't as ambiguous as accountants often make it sound. Here's the comparison at three real profit levels, with the non-tax factors that swing the decision.
The tax basics
- Sole trader / self-employed: all profit taxed personally at marginal rates — income tax (20%/40%) + USC (up to 11% with the self-employed surcharge over €100k) + PRSI Class S (4%). Marginal rate at the top: ~55%.
- Limited company: trading profit taxed at 12.5% corporation tax. Remaining 87.5% sits in the company. To get it personally, you pay yourself salary (PAYE) or dividends (PAYE-equivalent + PRSI for proprietary directors).
The arbitrage is the gap between 12.5% (company) and 52–55% (personal marginal). It only matters if you can leave money in the company.
Scenario 1: €40,000 profit (sole trader sweet spot)
Sole trader: Tax (~20% effective): €7,500. After-tax: €32,500.
Limited co, full extraction as salary: Similar net result, plus €1,500–€2,500 extra compliance cost.
Verdict: Stay sole trader. Incorporation adds cost without saving tax.
Scenario 2: €80,000 profit (the inflection)
Sole trader: Tax (~33% effective, marginal 52%): ~€26,500. After-tax: €53,500.
Limited co, draw €50k salary + leave €30k in company: PAYE on €50k ~€10,500 + CT on €30k = €3,750. Total tax this year: ~€14,250. Cash to you now: €39,500. Cash retained in company: €26,250. Tax saved: ~€12,250 vs sole trader if you don't need all the money.
Verdict: Incorporate only if you can live on the €50k salary and don't need the rest immediately. If you need every euro, the tax saving is negligible.
Scenario 3: €150,000 profit (clear company territory)
Sole trader: Tax (~42% effective, marginal 55%): ~€63,000. After-tax: €87,000.
Limited co, draw €70k + €30k pension + leave €50k: PAYE on €70k ~€19,500 + €30k employer pension (no PAYE or BIK) + CT on €50k = €6,250. Total tax visible: ~€25,750. Cash to you: ~€50,500. Pension fund built: €30,000. Retained company cash: €43,750. Tax saved: ~€37,250 in year one alone.
Verdict: Incorporate. The pension lever alone makes it worthwhile.
The non-tax factors that actually drive the decision
Tax is only one input. Equally important:
Limited liability
Sole traders are personally liable for business debts. Limited companies aren't — directors are protected (with exceptions for personal guarantees, fraudulent trading or unpaid PAYE/VAT). For any business with real liability exposure (construction, contract work, large supplier credit), this alone often justifies incorporation regardless of tax.
Compliance cost
A limited company costs €1,500–€3,500/year in accounting and compliance vs €500–€1,200 for a sole trader. Below ~€60k profit, the extra cost typically outweighs the tax saving.
Cash flow at extraction
Money inside a company is the company's, not yours. Getting it out means salary (PAYE) or dividends (PAYE-equivalent). If you need every euro of profit personally, the company is just a more expensive sole tradership.
Pension capacity
The biggest single advantage of incorporation. Employer contributions to a director's executive pension are tax-deductible for the company, BIK-free for the director, and not capped by the age-related personal limits. This is where high-earning company directors build retirement wealth that sole traders simply can't match.
Exit planning
A trading company can be sold, attracting Retirement Relief (up to €750k CGT-free for owners 55–69) or Entrepreneur Relief (10% CGT on first €1m of gain). A sole trader sells assets piecemeal with less favourable treatment.
The conversion math
Switching from sole trader to limited company involves transferring trade assets, with relief available under s.600 TCA 1997 to defer CGT on the goodwill transfer. It's a one-off project costing €1,500–€3,000 in fees, and worth modelling carefully — especially around timing.
Should you incorporate?
We model both scenarios over a 3–5 year horizon, including pension, exit and family-employment factors. Free initial conversation, fixed-fee modelling thereafter.
Run the Numbers Planning Service