Going self-employed or contracting
A defensible rate, and the tax you should be putting aside from the first invoice.
Ends with: An hourly rate you can justify and a percentage of every invoice going somewhere safe.
Going out on your own moves a great deal of invisible work onto your desk at once. Nobody deducts your tax. Nobody pays your ACC levies. Nobody tells you that your second year costs considerably more than your first, or that the rate you have been quoting does not actually cover the weeks you do not work.
This pathway puts those in the order they arrive. The structure comes first, because sole trader or company is awkward to change later and the crossover point is further away than most people assume. Then the rate, which has to exist before your first invoice does. A contractor rate is not a salary divided by 2,080: it carries your tax, your ACC, the leave nobody pays you for, the gaps between jobs, and the hours you spend doing admin instead of billable work.
Setting tax aside sits early, at step five, and it is the single habit that separates a comfortable first year from a frightening one. A percentage of every payment into an account you do not touch, from the very first invoice. People who start this on day one never have a bad conversation with Inland Revenue. People who intend to start it later usually do.
The middle is GST, ACC and what you can genuinely claim, all of which are rules rather than judgement calls once you know them. Then provisional tax, and the reason the second year bites: your first year's bill and your second year's instalments can fall due within months of each other. Nothing has gone wrong when that happens, but it catches anyone who budgeted for only one of them. The pathway ends where the cycle does, with the IR3.
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Sole trader or company
The first decision, and the one that is awkward to undo. For most people starting out a sole trader is right; the crossover comes later than people expect.
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What changes when you are not an employee
No PAYE, no employer KiwiSaver, no sick leave, and the tax is now your job. This is the whole shape of it in one page.
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Work out your rate
Do this before your first invoice, not after. A contractor rate is not a salary divided by 2,080: it has to carry tax, ACC, leave you do not get paid for, and the gaps between jobs.
Work out your own: Hourly Rate Calculator 9 min read -
Withholding tax, if it applies to you
Some contract work has tax deducted at source under an IR330C. If that is you, your provisional tax picture changes completely.
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Set aside tax from the first invoice
The single habit that separates a comfortable first year from a frightening one. Put a percentage of every payment somewhere you will not touch it.
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How GST actually works
You collect it, you claim it back on what you buy, and you pass on the difference. It was never yours, which is why spending it is the classic first-year mistake.
Work out your own: GST Calculator 8 min read -
When you have to register for GST
Registration is compulsory once turnover passes $60,000 in any twelve months, and that is turnover, not profit. Voluntary registration below it is sometimes worth it.
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ACC levies
You now pay both the earner and the work levy, and the amount depends on a classification unit code you may not have chosen carefully.
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What you can actually claim
A proportion of the house and the car, worked out on a basis you can defend if asked. Guessing here is what turns a review into a bill.
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Provisional tax, and the year it bites
Your second year is the hard one: the tax on year one and the instalments for year two fall due together. Knowing that in advance is the whole point of this step.
Work out your own: Provisional Tax Calculator 10 min read -
Budgeting without a payday
Pay yourself a regular amount from an account the invoices land in, rather than spending what happens to arrive that month.
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KiwiSaver when nobody matches you
No employer contribution any more, but the government one still applies if you put in enough. Most self-employed people leave it on the table.
Work out your own: KiwiSaver Calculator 7 min read -
Filing your IR3
The end of the first cycle. What goes in it, when it is due, and what happens if the number is bigger than you set aside.
When to stop and get someone else
An accountant is worth their fee in the first year, and more so if you are choosing between a sole trader and a company or your income is irregular. Inland Revenue also answers questions directly and will not penalise you for asking. Getting the structure wrong is expensive to unwind later.
This pathway is information, not financial advice. Rates, thresholds and rules change; every guide carries the date it was last reviewed.
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