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Becoming a sole trader
Becoming a sole trader is an easy way to:
• start a business
• work for yourself
• work as a contractor for someone else.
If you want to become a sole trader, this page can help you understand what’s involved, if it’s the right choice for you and what you need to do to get started.
If you’re already a sole trader, you can use our ‘Sole trader checklist’ to tick off the essentials of being a sole trader.
Starting out
It’s relatively easy to start a business as a sole trader — you don’t need to go through the same legal process as setting up a company.
To become a sole trader, you don’t need to register yourself or your business with a government agency. You only need to inform Inland Revenue (IR) that you have started working for yourself as a sole trader. We’ll outline how to do this and how to complete other essential tasks in the section ‘Getting started tasks’.
The sole trader community is an integral part of the New Zealand economy. Being a sole trader appeals to a wide range of people, including:
- tradespeople, for example, plumbers, house painters and electricians
- contractors who work for other organisations, for example, IT consultants and builders
- small business owners, for example, hairdressers and landscape gardeners
- people who turn a hobby into a business, for example, artists and furniture makers.
Being a sole trader isn’t for everybody
Going it alone means you control your business, and get to keep all the profits. However, if you want to sell your business or get investors at some stage, it’s best to have a company structure from the start.
You get some of the same benefits employees get, for example, paid parental leave. But you will miss out on other things, for example, paid sick leave or bouncing ideas off teammates.
Talk to people in the industry you want to work in. Find out if it’s for you.
Choose your business structure
Is sole trader the best structure for your business?
Use our Choose Business Structure tool to check that it’s right for your business’s needs. Just three quick questions and you’re on your way.
What to consider before you start
Make sure you have a clear idea of why you want to be a sole trader and what you want from it. Being a sole trader can be a flexible way to work. You’re your own boss. But you may also be your entire staff, too.
Use our tips and tools to test your business idea or work out what you want to earn contracting.
Talk to people who have chosen the structure you’re considering. Think about getting an advisor, for example a lawyer or accountant who specialises in your industry.
Questions to ask before you start
Government help for sole traders
To become a sole trader you must have:
- a personal IRD number for paying income tax and GST
- government licences and permits that your business needs
- qualifications or registrations for your trade or profession.
Tax and income
You’ll need to tell IR you’ve become a sole trader and register for GST if you think you will earn over $60,000 a year.
Accident Compensation Corporation (ACC)
When you start out as a sole trader, you automatically get ACC personal injury cover from day one. It’s called CoverPlus. What you pay will be based on the type of work you do and your liable earnings.
You can choose to change to CoverPlus Extra which gives you more control over how much of your income you want ACC to cover, and means you can lower the levies you pay.
Your first levy invoice will arrive after the end of your first year in business. After that, you’ll be invoiced once a year, usually in July or August.
Types of cover for self employed(external link) — ACC
Business name and logo
It’s never too early to think about your logos, trade marks and inventions (intellectual property or IP). When you protect IP you’re safeguarding the time, money and effort you put into building a business.
Sole traders can’t advertise using their personal name if someone has already registered it as a trade mark in the same industry.
Check whether your name has been registered as a business name, trade mark, web domain or social media username with our ONECheck tool.
Your business name and logo are also an extension of your personal brand. As a sole trader it’s important to be mindful when crafting your business identity. Hnry’s comprehensive guide to personal branding could help you.
The freelancer’s guide to personal branding(external link) — Hnry
Get advice
People often become sole traders because they have certain skills that they want to make a living from. However, you can’t be an expert in all areas of business, for example, day-to-day finances or business planning, and you don’t have to be. Think about getting advisors, such as accountants, mentors and lawyers, to help you from an early stage.
How business advisors can help
If you intend to contract as a sole trader to larger corporations check out advice on what to consider before you start contracting.
Getting started tasks – what you must do
If you’ve decided to start a business, you need to inform and register with certain government agencies when you begin. We’ve outlined what you must do to get set up as a sole trader and how to do it.
Telling IR you are a sole trader
To become a sole trader, you must have an IRD number and advise IR you are working for yourself.
I do not have an IRD number:
- Complete the IR quick assessment on how to apply for an IRD number to get one.
How to apply for an IRD number(external link) — Inland Revenue
- Set up your ‘MyIR Account’ at IR and follow the next step to advise IR you have started working as a sole trader.
I already have an IRD number and I need to tell IR I have started working for myself as a sole trader:
- Log into your MyIR account at IR.
Home(external link) — Inland Revenue
- Click the ‘I want to…’ tab.
- Scroll down to ‘Communicating with IR’ and select ‘Send a message’.
- Under ‘Select an option’, select ‘This message is not relevant to a specific account’.
- Under ‘Select message category’ select ‘Other’.
- In the subject line enter ‘Notification to become a sole trader’ and in the message area you can ask any questions or request any information about being a sole trader. Then click ‘Submit’ to send.
Register for GST (if applicable)
- If you think you will earn over $60,000 a year you need to register for GST. To register, go to IR’s website and follow the steps in the link below.
Registering for GST(external link) — Inland Revenue
Register your MyACC account
As a sole trader, you will automatically receive ACC cover if you are injured.
However, you need to register and set up MyACC business account to pay your levies when the time comes.
Register for your MyACC business account
- Have your IRD number nearby then go to ‘Register for MyACC for Business’.
Register for MyACC for Business(external link) — Accident Compensation Corporation
- Register with a RealMe, Google or Microsoft account.
Will you be contracting as a sole trader?
If you’re contracting as a sole trader, you must declare your tax rate for schedular payments using the IR330C form. Schedular payments are payments made to contractors who perform certain activities or services, or work in certain industries.
To download the IR330C form and learn how to work out your tax rate for schedular payments visit IR's website.
Work out and declare my tax rate for schedule payments(external link) — Inland Revenue
Do you need certificates and licences?
Make sure you have any government licences and permits your business will need, along with any qualification or registrations required for your trade or profession.
Getting started task - optional but recommended
This task is not essential to getting set up as a sole trader, but it is recommended that you do. We’ve outlined how it can benefit your business and how to apply.
Apply for a New Zealand Business Number (NZBN)
You can get a New Zealand Business Number (NZBN), a unique identifier, which any business in New Zealand can have. Having a NZBN is recommended, as it reassures potential suppliers, customers and clients that you are a business.
Using it will speed up your interactions with government, suppliers and customers, and other businesses, for example, when sharing invoicing details.
- To apply for a NZBN head to NZBN’s website.
Applying for an NZBN if you’re self-employed(external link) — NZBN
Next steps
Now that you’re set up, follow our easy checklist to tick off the essentials of being a sole trader.