Pricing for Sole Traders – covering your tax

Pricing for sole traders
Self-Employment brings many rewards, but twice as many challenges I have found over the years.
One of them is Pricing – trying to find the balance between being competitive and making a profit!
The price you charge a potential long-term customer cannot change radically from year to year, so you need to know you have set the right price at the start.
This price must, first of all, cover your costs which should be straightforward enough to calculate. (Materials, Overheads etc). Then you add some element of profit – which should cover your expertise/time etc into providing the product or service to the customer.
What is critical in pricing is to ensure you have charged enough to cover tax!

Assuming you are assessed as a single person, profits after €35,300 for the year will be charged at 40% income tax.
Let us assume you fall under this threshold. In this case your profit will be charged at 20% plus 4% PRSI and say 3% approx. for USC.
So, percentage lost to tax will be 27%. Remember though, you can earn €16,500 of a profit tax free, which is not charged income tax of 20% but will be charged PRSI and USC. Again, this is based on a single person having no other income including social welfare.
So, to summarise, if you have profits up to €35k, expect to lose about 15% of this to tax.
Your sales price must reflect your costs to provide the product or service, plus your own profit, plus the 15% tax lost on your profit made. Be prudent and use 20%, and you may end up with a tax refund when the income tax deadline arrives!