Weigh up the pros and cons
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.
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.
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
Doing 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, like paid parental leave. But you will miss out on other things, like paid sick leave or bouncing ideas off team mates.
Talk to people in the industry you want to work in and find out if it’s right for you.
What to consider before you start
Do your research
When preparing to become a sole trader, it's important to do your homework. You can:
- 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 advice from someone who specialises in your industry.
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.
Think about your business name and logo
It’s never too early to think about your logos, trademarks and inventions (intellectual property). When you protect your intellectual property, 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 trademark in the same industry.
Check if your name has been registered as a business name, trademark, 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 – Hnry
Get expert 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, and you don’t have to be. Think about getting advisors like accountants, mentors and lawyers, to help you from an early stage.
If you want to contract as a sole trader to larger corporations, check out advice on what to consider before you start contracting.
What you must do before you start
- Step01
Tell Inland Revenue (IR) you’re a sole trader
To become a sole trader, you must:
- have an IRD number
- tell IR you are working for yourself.
Follow these steps if you don’t have an IRD number:
- Complete the IR quick assessment on how to apply for an IRD number to get one.
- Set up your MyIR Account at IR and follow the next step, to tell IR you have started working as a sole trader.
Follow these steps if you already have an IRD number:
- Log into your MyIR account.
- 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’. In the message area, you can ask any questions or request any information about being a sole trader.
- Click ‘Submit’ to send.
- Step02
- Step03
Register your MyACC account
As a sole trader, you will automatically receive ACC personal injury cover if you are injured.
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
- means you can lower the levies you pay.
Types of cover for self-employed – ACC
You need to register and set up a MyACC business account to pay your levies. To register for your MyACC business account:
- have your IRD number ready
- go to ‘Register for MyACC for Business’.
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.
- Step04
Declare your tax rate for schedular payments
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.
- Step05
Apply for a New Zealand Business Number
When you set up as a sole trader, this task is optional but recommended.
A New Zealand Business Number (NZBN) is a unique identifier that any business in New Zealand can have.
Having an 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, customers and other businesses – for example, when sharing invoicing details.
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