Registering as a Sole Trader in New Zealand

Choose your business structure

There are three common trading business structures in New Zealand – sole trader, partnership and company. Each offers various benefits and can alter how you register your business and account for tax. Because Afirmo’s easy-to-follow business type selection wizard is tailored to you, we’ll help you choose the best structure for your business.

What does it mean to do business as a sole trader?

As a sole trader you run the business by yourself, get 100% of the business profits or losses, and are personally responsible for all taxes, debts and other obligations. You get some of the same benefits employees get, like paid parental leave, but you don’t get annual leave or paid sick leave. Going it alone can also mean you miss out on bouncing ideas off teammates.

Unlike setting up a company or a partnership, it’s relatively easy to start a business as a sole trader because you don’t need to go through a legal process of setting up another entity. You already exist! There are things to register, and we will take you through these. You’ll just need an IRD number for tax purposes (this will be your personal IRD number) and the necessary permits or qualifications to carry out your business.

If you think you might want to sell your business or get investors at some stage, it’s usually best to have a company structure from the start. You can change business structures after you have started but it creates work and more tax filings. We have experts to help in each case so don’t worry we have your back.

Is becoming a sole trader right for you?

We find that setting up as a sole trader appeals to a wide range of people, including:

• People who are running side hustles via online trading marketplaces like Amazon and TradeMe
• People who are turning their hobby into a business, like photographers, personal trainers and candle makers
• Contractors who work for other organisations, like IT consultants, graphic designers and builders
• Small business owners, like sewing and alterations specialists, house cleaners and hairdressers
• Tradespeople, like plumbers, house painters and electricians
• People who get work through booking platform providers but aren’t employed by them, like cab drivers.

It’s often a good idea to talk to people in the industry you want to work in to find out if it’s right for you. Our support tools and community will also help you decide.

Upsides to being a sole trader include:

• It’s easy to set up – you can get up and running quickly
• Start-up costs are low – there are lower levels of registration requirements
• You control the business and get all the profits after paying taxes and debts
• You can offset losses against other income (similar to some types of companies, for example a Look Through Company)
• If you want to change your business structure you can register your business as a company in the future

Downsides can include:

• You’re responsible for paying back all debts with no limited liability – this may put your personal assets at risk
• It’s easier for people to invest in a company as they can buy shares and share in future rewards, whereas a sole trader is a one person ownership structure
• Getting loans or investment can be more challenging
• It can be harder to sell as a working business and it’s time consuming in the future to transfer the sole trader business to a company as the business will have assets. If you set up a company initially then all the assets will be owned by the company from the get-go.

Legal obligations for sole traders

As a sole trader you are the business entity. This means you directly own the legal obligations of your business. For example, if you employ staff you must meet the legal obligations as an employer including registering with Inland Revenue and ACC.

You can insure yourself against certain events, but the claim will be against you personally. You don’t have the protection of a limited liability company.

What are your tax obligations as a sole trader?

At the end of each financial year you must complete an IR3 income tax return and submit it to Inland Revenue.

How much you earn each financial year will influence the amount of tax you pay. You need to pay tax on all the income you earn from your work as a sole trader. You can claim work expenses to reduce your income tax, that can include things like running a home office, business travel mileage, your phone and internet. You can often get access to more deductions as a sole trader than you can as an employee.

You will need to register for GST if you sell a product or service (including your own personal services or labour) and think you have or will earn more than $60,000 in a financial year. If you are GST registered, you can claim back the GST you pay on items you buy for your business. You can apply for GST registration through Afirmo.

Our business set up wizard takes you through the process of finding out what types of taxes are relevant to your business and helps you register for PAYE and GST and create certain types of ACC accounts.

We’ve developed two options for you to manage your tax depending on what experience you have and what your appetite is for self-service. If you’d rather let us do the work for you, you’ll like our ‘do-it-for-me’ tools. This option allows you to let us take care of your tax calculations and filing for you. Or if you love your DIY, the ‘do-it-yourself’ tool allows you to categorise your bank transaction data to calculate your taxable income, with the help of our other tax wizards.

Do I need an NZBN number as a sole trader?

If you’re a sole trader you’re eligible to apply for a NZBN. This is a unique identifier, which any business in New Zealand can now have. Using it will speed up your interactions with Government, suppliers and customers, and other businesses. You can apply for a NZBN through Afirmo.

How to set up as a sole trader

So you’ve worked out that setting up as a sole trader is right for you. Here’s what you need to have to become a sole trader:

• 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.

Create your free account and get started with getting your business set up right.