Self-employment & tax 

I am self-employed. What are my tax obligations?

If you are self-employed, you need to work out what percentage of your income you have to pay in tax, and file a tax return with Inland Revenue at the end of each tax year (31 March).

If you are a sole trader (i.e. you are trading on your own), you will be taxed at the individual tax rates.

To learn about what you need to do at the end of each tax year, visit the Inland Revenue webpage, What to do at the end of the tax year.

If your annual income is, or is expected to be, more than $60,000 then you must register for GST and file a GST return. If your income is expected to be less than $60,000, you can choose to register for GST but you don’t have to.

Independent contractors
If you get work through a recruiter or other labour hire business and receive your pay from the recruiter, from 1 April 2017 the recruiter is responsible for deducting your tax from your payments. This is like PAYE for self-employed people. The tax-deducted payments are called schedular payments. 

If you don’t work through a recruiter and the business pays you directly for your services, from 1 April 2017 you can arrange to have your tax deducted by the business before it pays you – but only if both parties agree to it.

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To make sure the right amount of tax is deducted, you will need to complete an IR330C each time you start a new contract, and give it to the business that is paying you. You have to choose your tax rate, which is either the standard tax rate for the kind of work you do, or one that you work out yourself - there’s a tool to help you work it out on the Inland Revenue website.

More about completing an IR330C is on the Inland Revenue website.

Note that although you receive schedular payments, you will still need to file a tax return every year (an IR3 or IR3NR) and accompanying Financial Statement Summary (IR10).

More about this is on the Inland Revenue website.

If your tax is not going to be deducted from the payments you receive for work done (i.e. you don’t receive schedular payments) you will have work out your tax and pay it yourself. The easiest way to make sure you have enough money to pay your tax, is to put away a portion of your income each time you are paid (about 20-35% depending on how much you earn). You can use an Inland Revenue calculator to work out exactly how much tax you’ll need to pay in any given tax year.

More detailed information about business income tax is on the Inland Revenue website. You can call their business income tax line 0800 377 774 if you need help working out your tax obligations.

You can attend a tax seminar to learn about business tax, recording your income and expenses and so on. They are held in locations all over New Zealand. Inland Revenue also has a useful book, Smart Business, which you can download or order for free. There’s more information on the Inland Revenue website.

We also have information elsewhere about small business.

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I'm doing casual work for someone and getting paid cash. Am I required to pay tax on this income, and who is responsible for ensuring it is paid?

You have to declare all income you earn, and pay tax on it. 

If you are employed by a business, then your employer should be paying your tax to Inland Revenue as PAYE. It is your responsibility to supply your employer with the correct tax code.

If you work as a contractor, e.g. a self-employed gardener, it is your responsibility to pay your taxes (see the previous question). 

You will need to work out which tax code to use - this determines the tax rates to use when calculating the amount of tax you have to pay.

Information about tax rates and tax codes is on the IRD website.

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Do I have to pay ACC levies?
If you are self-employed you have to pay ACC levies. ACC will invoice you directly. Inland Revenue provides income information to ACC to enable them to invoice you.

You can go to the ACC webpage on ACC levies for more information, or contact ACC on 0508 4COVER (or 0508 426 837), email or fax 0800 222 003.

Your ACC levies are tax deductible

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What is provisional tax?

If you have a tax bill of over $2,500 at the end of a financial year, Inland Revenue may ask you to pay provisional tax for the following year. Being a provisional taxpayer means you prepay your tax in instalments during the year, based on the tax you paid the previous year. You still have to file a tax return at the end of the tax year, after which you may be due for a refund or need to pay more tax.

The number of instalments you need to make (two, three or six installments during the year) depends on the option you use to calculate your provisional tax, and how often you file GST returns (if you are registered for GST).

You still have to file a tax return at the end of the tax year, after which you may be due for a refund or need to pay more tax.

For more information on provisional tax such as payment dates, see the Inland Revenue webpage on provisional tax

If you are an independent contractor, note that from 1 April 2017 you may be able to arrange for tax to be deducted from your payments before you receive them (see the first question).

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I use my car a lot for my work. How much can I claim back on mileage?

If you're in a partnership or a self employed person who trades on their own, and you use your own car for work purposes, you can claim back some of your vehicle expenses.

You will need to work out how much of the running cost of the car is for business reasons (excluding travel between home and work) and how much is personal. Running costs include petrol, repairs, maintenance, insurance, WOF, registration, road use charges and the cost of parking.

You have a few options for working out what proportion of your vehicle use is for business purposes: 

  • Keep a log book over a 90-day period, and use this information to estimate the proportion of business usage over a full tax year. As long as the business use doesn’t vary by more than 20% you can use this estimate to claim the business share of your vehicle use for the next three years. You will need to keep your logbook for at least three years. To illustrate with an example from the Smart Business Guide - if, according to your log book, you travelled 2610 km in the last 90 days and 360 km of that was for business purposes, then you will be able to claim 13.8% of your vehicle expenses as a business expense. 
  • Keep a log book of all of your private and business related vehicle costs, and claim deductions on your actual business-related vehicle costs
  • Claim up to 25% of the total use of your vehicle – however you may be asked to provide evidence of the percentage claimed.
  • Use the standard mileage rate for vehicle use - currently 72 cents per kilometre. You can do this if you drive less than 5,000km for work during the tax year.

More about this is on the Inland Revenue website.

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What are my tax obligations if I wind up my business?

You will need to file a final tax return which includes all of your business accounts up to the date that your business ceased to operate. It needs to be filed at the same time you would have filed your normal income tax returns, after the end of the financial year in which the business closed down.

You should keep your business records for a further seven years.

If your business is a company, you’ll also need to ask the Registrar of Companies to remove the company from the register. More about this is on the Companies Office website.

More about your tax obligations when winding up a business, including a company, is on the Inland Revenue website.