Sole Traders – Master Your Tax Admin

According to Stats NZ, a significant number of sole traders have entered the marketplace, indicating a strong desire among individuals to take control of their own careers and businesses.

Currently, sole traders make up a vital part of New Zealand’s economy, working across various industries such as construction, professional services, IT, and agriculture.

However, being a sole trader in New Zealand comes with specific obligations, particularly regarding financial administration. This guide will provide you with the confidence and peace of mind to meet these obligations.

Let’s get started!

Setting Up The Right Business Structure

It’s crucial to establish your business correctly from the outset to maximise your income and claim the most tax deductions.

Whether you’re working independently or contracting through a recruitment consultant, there are generally two ways to set up your business in New Zealand. Each has its advantages and disadvantages, and it’s important to choose the structure that best suits your needs.

Company Structure

A company structure involves setting up a “Limited” (Ltd) company. An Ltd is beneficial if you have employees or are looking to take on investors. However, for a sole trader, an Ltd structure can add unnecessary complexity and may not allow you to minimise your taxable income effectively through legitimate deductions.

Forming a company is also more costly than operating as a sole trader. You’ll need to register a company name, open separate business accounts, and adhere to specific rules regarding fund withdrawals. Additionally, you’ll be responsible for compulsory ACC levies and insurances.

There’s also a higher level of financial administration required – you’ll need to file both company and personal tax returns.

Sole Trader

Operating as a sole trader is the simplest way to set up your small business in New Zealand. It allows you to work with multiple clients and is manageable if you contract through recruiters.

You can benefit from tax deductions unavailable to contractors and only need to file a single tax return at the end of the financial year, unlike a company structure.

As a sole trader, you’ll be liable for any required insurances, which are tax-deductible. You’ll also need to manage your own KiwiSaver contributions, as there are no mandatory employer contributions for self-employed individuals. With the growth of sole traders in New Zealand’s economy, there are plenty of insurance and KiwiSaver options tailored to your business style.

Sorting Your Taxes As You Go

It’s essential to manage your tax obligations as you earn. Neglecting to do so can lead to cash flow issues for your business.

When you receive payment, you must set aside the correct amount for income tax, GST (if registered), and student loan repayments. You should also consider your KiwiSaver contributions.

Most accounting software is designed for SMEs and requires training to use effectively. They are often used in conjunction with an accountant, which can be costly.

Unlike traditional accounting software, Hnry is a new tax and accounting service designed for sole traders in New Zealand.

Hnry simplifies tax calculations by automatically paying your tax and other critical expenses as you earn, then depositing your net income into your account. With professional accountants on hand, Hnry will automatically file your GST returns and end-of-year tax return as part of their service. You can also receive tax advice on legitimate deductions without additional fees.

Maximising Your Deductions

One of the key benefits of being a sole trader is the ability to reduce your taxable income through legitimate tax deductions, thus lowering your tax liability at the end of the year.

Examples of deductible expenses include:

• Equipment for your work – such as computers, phones, and office supplies for office-based roles, uniforms or safety gear, tools and materials for tradespeople, or travel expenses related to your business.
• Vehicle costs and work-related running expenses – if you use your vehicle for work, you can deduct the costs associated with its use.
• Marketing and advertising costs – Expenses incurred to promote your business, including signage, online advertising, and public relations, are deductible.
• KiwiSaver contributions – Contributions to your KiwiSaver can be claimed as an expense.
• Insurance and accounting advice – The cost of accounting services and any business insurance premiums are deductible.
• Home office expenses – You can claim a portion of your mortgage interest, rent, and utilities for the area of your home used for business purposes.
• Work-related travel expenses – This includes flights and accommodation for business trips.

The list above is not exhaustive, and it’s advisable to consult with your accountant or registered tax agent about potential deductions.

Using a service like Hnry allows you to record expenses as they occur and receive immediate tax relief, rather than waiting until the end of the tax year for tax savings.

Key Tax Dates And Deadlines

As a sole trader, it’s important to be aware of all the key tax dates and deadlines that apply to you in New Zealand.

If your business earns more than $60,000, you’re required to register for GST and file GST returns regularly. You may also need to make provisional tax payments throughout the year to avoid a large tax bill at year-end. After 31 March, you must file your annual income tax return.

Important dates for GST returns and your annual income tax return:

• 1 April – 30 June – 28 July
• 1 July – 30 September – 28 October
• 1 October – 31 December – 28 January
• 1 January – 31 March – 7 May
• Annual income tax return – Due by 7 July if not using a tax agent, otherwise 31 March the following year

Having a robust accounting and tax platform can significantly ease the process of filing GST returns and end-of-year tax returns. Many sole traders initially try to manage finances with a spreadsheet but end up needing an accountant to interpret the data, which can be expensive.

The best approach is to implement effective financial systems and accounting/tax software from the beginning, allowing you to focus on growing your business.

About Hnry

Hnry is a tax service and app designed for sole traders in New Zealand.

With Hnry, when you get paid, the service automatically calculates, deducts, and pays all your taxes – income tax, GST (if applicable), and any student loan repayments – before transferring the remainder to your personal bank account.

In the Hnry app, you can easily record expenses and send unlimited invoices; Hnry’s accountants review your expenses immediately to provide instant tax relief.

As part of the service, Hnry will also file your GST returns and end-of-year tax returns when they’re due.

---