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 ↗
The Earned Income Tax Credit
In 2026, the Earned Income Tax Credit and Personal Tax Credit are each €2,000, giving a qualifying sole trader €4,000 in standard credits. From 1 January 2027, each rises to €2,125, giving €4,250 in standard credits. The worked example below remains a 2026 example.
The 2027 single-person standard-rate band also rises from €44,000 to €46,500.
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. An annual ROS extension may apply if you both file and pay online by the published extended deadline.
You may also need to 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.
What this means in real life
In real life, a sole trader is taxed on taxable profit rather than on every euro received from customers. Business income is reduced by allowable business expenses, and income tax, USC and PRSI are then calculated through self-assessment alongside any other income. Money taken from the business for personal use is not a separate wage deduction in the way an employee sees PAYE on a payslip. The individual and business are also not separate legal persons. Records of invoices, expenses and payments support the annual return, and VAT is a separate system if registration applies. The registration guide explains entry into self-assessment, while preliminary tax explains why advance tax can be due before the final current-year liability is known.
Form 12 or Form 11? Revenue says to register for self-assessment if self-employment is your main income. For a PAYE employee or pensioner with additional non-PAYE income, Revenue's current guidance requires registration and Form 11 if taxable non-PAYE income exceeds €5,000 or gross non-PAYE income exceeds €30,000. If neither amount is exceeded and the income can be taxed through PAYE by adjusting credits and rate bands, declare it using the online Form 12 in myAccount. The thresholds are not tax-free allowances. Existing self-assessment obligations and other reasons for filing Form 11 still apply.
Source: Revenue — Who should register for Income Tax self-assessment?.
Source: Revenue — Deduction for expenses in employment.
USC exceptions: If annual income does not exceed €13,000, USC is not due; above that limit it applies to all chargeable income, not just the excess. At income of €60,000 or less, people aged 70 or older, or holding a full medical card at any time in the year, qualify for 0.5% on the first €12,012 and 2% on the balance. A GP visit card does not qualify; above €60,000 standard rates apply. Contact Revenue to arrange medical-card treatment. The standard USC bands still apply. In addition, non-PAYE income above €100,000 attracts a 3% USC surcharge on the excess, normally giving 11% combined USC on that slice. For example, €120,000 of non-PAYE income adds a €600 surcharge (3% of €20,000); PAYE salary does not itself attract this surcharge. DSP payments and certain other income are exempt. These rules apply in 2026; the medical-card concession is already extended through 31 December 2027 under Finance Act 2025.
Source: Revenue — Medical-card USC extension through 2027.
Source: Revenue — Reduced USC rates.
Source: Revenue — Other USC rates.