Sole Trader Tax Explained Ireland

You pay tax on profits, not turnover

This is the most important thing to understand first. As a sole trader, you do not pay tax on every euro that comes into your business. You pay tax on your profit — what is left after you deduct your allowable business expenses.

Term	Meaning
Turnover	All income received from clients or customers
Allowable expenses	Genuine business costs — materials, equipment, accountant fees, a portion of home office costs, etc.
Taxable profit	Turnover minus allowable expenses — this is what you pay tax on

Source: Revenue.ie — Self-assessment and self-employment ↗

The three taxes you pay

As a sole trader you pay three separate charges on your profits, just like a PAYE employee — but calculated differently.

Tax	Rate	What it applies to
Income tax	20% / 40%	Taxable profit, using the same bands as PAYE
USC	0.5% – 8%	Self-employed income after allowable trade expenses, using standard USC bands
Class S PRSI	4.2375% blended for 2026	Taxable income over €5,000 (minimum annual contribution €650)

Source: Citizens Information — Taxation of self-employed people ↗

Class S PRSI gives you different benefits than Class A. It can count for the State Pension, Invalidity Pension and Jobseeker's Benefit for the Self-Employed, but it generally does not cover Illness Benefit.

The Earned Income Tax Credit

PAYE employees get an Employee Tax Credit of €2,000. As a sole trader, you get the Earned Income Tax Credit instead — also worth €2,000 in 2026. This credit reduces your income tax bill directly.

You also still get the Personal Tax Credit of €2,000, giving you a total of €4,000 in standard tax credits — the same as a PAYE employee.

Source: Revenue.ie — Tax credits 2026 ↗

Worked example

Here is how the tax works for a sole trader with €50,000 turnover and €10,000 in allowable expenses — leaving taxable profit of €40,000.

Step	Calculation	Amount
Taxable profit	€50,000 – €10,000 expenses	€40,000
Income tax (all at 20%)	€40,000 × 20%	€8,000
Less: Personal tax credit	−€2,000	€6,000
Less: Earned Income credit	−€2,000	€4,000 income tax
USC	Approx. on €40,000 profit	€733
Class S PRSI (2026 blended)	€40,000 × 4.2375%	€1,695
Total tax and charges		~€6,428

This is an approximate example only. Your actual liability depends on your specific income, expenses and circumstances. USC here is calculated on self-employed income after allowable expenses, before pension relief and tax credits.

How and when you pay

You file a Form 11 each year through Revenue's Online Service (ROS). The deadline is 31 October for the previous tax year. If you file and pay through ROS, this is extended to mid-November.

You also pay preliminary tax — an advance payment toward your current year's liability — at the same deadline. See our guide on preliminary tax explained for how this works.

Set aside roughly 30–35% of every payment you receive throughout the year. This covers income tax, USC and PRSI and means you will not be caught short at the October deadline.

Common confusion

"I pay tax on everything I earn."

No. You pay income tax on your profits — that is, after deducting allowable business expenses. If you earn €60,000 but spend €15,000 on genuine business costs, you pay income tax on €45,000. Keeping good records of expenses is one of the most important things you can do as a sole trader.

"Being self-employed means paying more tax than a PAYE employee."

Not necessarily. The income tax rates and bands are the same. The Earned Income Credit matches the PAYE employee credit. The key difference is you pay Class S PRSI instead of Class A, which gives you fewer benefits. And you have the ability to deduct business expenses, which a PAYE employee cannot.

"I only need to file a tax return if I earn a lot."

No. If your non-PAYE income exceeds €5,000 net (or €30,000 gross) in any year, you must register for self-assessment and file a Form 11. Even if your tax liability is zero after credits, the return must still be filed.