When you work for yourself, tax stops being someone else’s job. Income tax, GST, ACC, and provisional tax are all suddenly on you. Here is a plain-English guide to how each one actually works, when it falls due, and how much to set aside as you earn so nothing catches you out at year-end.
Key takeaways
- You pay tax on profit, not revenue. Track and claim every legitimate expense to keep your tax bill accurate.
- NZ uses a progressive tax system with five brackets, ranging from 10.5% to 39% for the 2025/26 year.
- Set aside 25-35% of your self-employed income for tax, ACC, and GST as it comes in.
- GST registration is compulsory once turnover exceeds $60,000. ACC invoices arrive once your tax return has been assessed by IRD, usually from September.
- Provisional tax kicks in when residual income tax exceeds $5,000, splitting your tax payment into three instalments.
When you were an employee, tax was invisible. Your employer deducted it, sent it to IRD, and you never had to think about it. Now you are self-employed, and the whole thing is on you. Income tax, GST, ACC, provisional tax, student loan repayments. All of it.
It is not as complicated as it feels. But you do need to understand the basics, because getting it wrong costs real money.
How does income tax work when you are self-employed?
You pay tax on your profit, not on your revenue. This is the most important thing to understand. You do not pay tax on every dollar that comes in. You pay tax on your profit, which is your income minus your legitimate business expenses. The more accurately you track and claim your expenses, the lower your tax bill.
Your self-employed income gets combined with any other income you earn (PAYE salary, rental income, interest, dividends) to determine your total taxable income. NZ uses a progressive tax system with five brackets for the 2025/26 year:
- 10.5% on the first $15,600 of income.
- 17.5% from $15,601 to $53,500.
- 30% from $53,501 to $78,100.
- 33% from $78,101 to $180,000.
- 39% above $180,000.
You declare everything on an IR3 individual tax return, due by 7 July each year (or 31 March the following year if you use a tax agent).
How much should I set aside for tax?
A common approach is to put 25-35% of your self-employed income into a separate bank account every time you get paid. The exact percentage depends on your total income and your expenses, but 30% is a reasonable starting point for most people. This should cover income tax, ACC levies, and give you a buffer.
For lower earners (under $50,000 a year), 20-25% is usually enough. For higher earners ($100,000+), 33-35% is closer to the mark.
The alternative is to use accounting software that calculates your tax as you go. Afirmo does this in real time, so instead of guessing at a percentage, you see the actual number based on your real income and expenses.
What happens with schedular payments and withholding tax?
If you work through a recruitment agency, labour hire company, or temping firm, they may deduct income tax from your pay before you receive it. These are called schedular payments, and the tax deducted is withholding tax. You set the rate using an IR330C form. If you do not provide one, the payer must deduct at 45%.
Schedular payments only cover income tax. They do not include ACC, KiwiSaver, or student loan repayments. You still need to manage those yourself. And you still need to file an IR3 at year-end, where the withholding tax already paid gets credited against your final bill.
When do I need to register for GST?
If your self-employed income exceeds $60,000 in any rolling 12-month period, you must register for GST. Once registered, you add 15% to your prices and collect it from your customers. You then file GST returns (usually every two months) and pay the difference between what you collected and what you paid in GST on business expenses.
If you paid more GST on expenses than you collected on sales, you get a refund. If you collected more than you paid, you owe the balance to IRD.
Below $60,000, registration is optional. Voluntary registration can make sense if you have high business expenses, because you can claim back the GST on those costs or if you expect that turnover will exceed $60,000. The trade-off is more admin if you aren’t expecting turnover to exceed $60,000.
How do ACC levies work for self-employed people?
As an employee, ACC was deducted from your pay automatically. As a self-employed person, ACC sends you an invoice once a year, usually from September, based on your declared income and the type of work you do.
There are two types of cover:
- CoverPlus: the default option, with compensation based on your actual earnings if you are injured.
- CoverPlus Extra: you choose a fixed level of cover in advance for more certainty about what you would receive.
Your ACC invoice is made up of more than one levy. The Work Levy and Working Safer Levy are tax deductible. The Earners’ Levy is not deductible for sole traders and shareholder-employees, because it is cover for non-work related accidents. Record the deductible portions as a business expense when you pay the invoice. This is one of the most commonly forgotten deductions because the invoice arrives months after the financial year ends.
How does provisional tax work?
If your residual income tax at the end of the year is more than $5,000, IRD puts you into the provisional tax system for the next tax year. Under the standard method, you pay your next year’s estimated tax in three instalments (28 August, 15 January, 7 May) instead of one lump sum.
The standard calculation takes last year’s tax bill, adds 5%, and splits it into three. Other methods are available if your income is variable.
The key thing is to be ready for the second-year trap. In your second year of business, you will likely owe your first year’s terminal tax and your second year’s provisional tax instalments at the same time. That is why setting aside tax money from day one matters so much.
What about student loan repayments?
If you have an outstanding student loan and your annual income exceeds $24,128 (2025/26 threshold), you are required to make repayments at 12% of income above that threshold. This applies to your self-employed income on top of any PAYE repayments your employer is already making.
Student loan repayments for self-employed income are calculated when you file your IR3, with interim repayments due alongside provisional tax dates: 7 May, 28 August, and 15 January.
What records do I need to keep as self-employed?
IRD requires you to keep records for seven years.
- Income records: invoices issued, payments received, schedular payment statements.
- Expense records: receipts, supplier invoices, bank statements.
- Asset records: purchase details, depreciation schedules, business-use percentages.
- GST records (if registered): taxable supply information for purchases, GST returns filed.
- Mileage logs (if claiming vehicle expenses).
- Home office calculations and supporting documents.
Digital copies are accepted. Cloud-based accounting software stores most of this automatically as you go.
What is the simplest way to manage all of this?
Self-employed tax is manageable if you understand the basics and stay on top of your numbers. Track your income and expenses, set money aside for tax, file your returns on time, and claim everything you are entitled to.
Afirmo calculates your income tax, GST, and provisional tax in real time as you record transactions. No spreadsheets, no guessing, no year-end panic. The tax position you see on screen is the actual number based on your real activity.
Frequently asked questions
Do I have to register as a sole trader to be self-employed in NZ?
No formal registration is required. You can start operating and either notify IRD through myIR income sources or when you file your IR3. You can trade under your own name or a trading name without registering anything.
As a sole trader you may want to register for a New Zealand Business Number (NZBN), this is a unique identifier that simplifies dealings with suppliers and customers and legitimises your business.
How is self-employed income different from contractor income?
They are usually the same thing. Self-employed and contractor are interchangeable terms in most contexts. The tax treatment is identical: you pay personal income tax on your profit, register for GST if your turnover exceeds $60,000, and pay ACC levies based on your income and industry. Being a contractor typically indicates you have withholding tax deducted from your earnings but doesn’t change your obligations.
When does self-employed income get taxed?
When you file your IR3 at year-end you will calculate the tax payable on the earnings, the tax payable will typically be due 7 February or 7 April. Before that, you may have made provisional tax payments through the year (if you were in the system from a previous year), but the actual tax assessment happens after your return is filed and IRD assesses it.
Can I be self-employed and a salaried employee at the same time?
Yes. Many people combine PAYE employment with self-employed work. You file an IR3 to declare both income sources together. Your tax requirements are calculated based on your total earnings, typically you will pay a higher tax rate on your self-employed earnings as it adds to your total earnings.
Afirmo handles all of this in one place: income tax, GST, ACC, provisional tax, and the year-end return. Start a free trial at afirmo.com.