While we might use the term ‘sole traders’ as a label to refer to all types of self employed individuals in business on their own, in reality it splits into two sub categories:
- those involved in a trade,
- and those involved in a profession, e.g. doctor, dentist, solicitor, accountant, etc.
Income tax status
The sole trader is assessed to income tax under Schedule D Case I or II, as appropriate, in respect of their income from the business or practice under the self-assessment system.
Pension contributions can be offset against these earnings, within limits, for income tax purposes.
Sole trader contributors pay Class S PRSI @ 4% on all of their trading/professional taxable income, gross deposit interest, and all other taxable investment income, regardless of the level of such income.
Employing family members
Many sole traders have a spouse/partner and/or other relatives involved in the business or practice in some manner.
The sole trader, as their employer, can establish an employer sponsored occupational pension scheme for their spouse/civil partner working in the business for PAYE remuneration from the business or practice.
This provides an opportunity for a sole trader to:
make tax deductible contributions for their spouse/civil partner in excess of the limits which would apply to personal contributions made by their spouse/civil partner;