Contracting alongside a salaried job

Most contracting careers start as a side gig: a few invoices sent while the salary keeps paying the mortgage. The tax setup for that in-between state is genuinely simple, but it's wrapped in a persistent myth about secondary tax and a nasty little surprise about which tax rate your side income actually pays. This guide sorts both out.

First, the myth: this isn't secondary tax

Secondary tax codes exist for people with two salariedjobs, where a second employer needs to know what PAYE to deduct. Self-employed side income has no employer and no PAYE, so no secondary tax code applies. You invoice, you're paid gross, the income goes in an IR3 at year end, and the tax is yours to handle: the same machinery as any sole trader, at whatever scale you're operating.

The rate surprise: side income starts at your top rate

Income tax brackets apply to your combined income, and the salary fills the lower brackets first. Every side-income dollar stacks on top, so it's taxed from your marginal rate upward: on an $80,000 salary, side-project profit is taxed at 33% from its first dollar (and pushes into 39% territory past $180,000 combined). The comfortable set-aside rules of thumb for full-time contractors undershoot here; your set-aside percentage should be your marginal rate, not a blended average.

What applies, at side-gig scale

• Telling Inland Revenue: the same myIR notification as any sole trader (the setup checklist covers it), and the IR3 replaces the automatic year-end assessment you had as a pure salary earner.
• Expenses: fully claimable against the side income, same rules as any business (what you can claim), and at your marginal rate every deduction is worth more.
• GST: the $60,000 threshold counts your taxable-activity turnover only; the salary is invisible to it. Most side gigs sit under the line, where registration is a choice with trade-offs.
• ACC: your self-employed earnings attract a levy on top of what your employment already covers, arriving on the usual in-arrears cycle.
• Provisional tax:triggers when residual income tax passes $5,000, and since PAYE covers the salary, the residual comes from the side income. At a 33% marginal rate that's roughly $15,000 of side profit; cross it and the provisional machinery starts, side gig or not.

When the side gig stops being side

The tax system doesn't care about the ratio; the thresholds above apply whether contracting is 10% of your income or 90%. What changes at the crossover is the planning: pricing a full-time rate (the salary-to-rate conversion), and the full three-tax picture replacing PAYE's autopilot. Contractors who ran their side gig with clean records and a real set-aside make that jump with the habits already installed.

How Coffer helps

A side gig is exactly when tax admin has to be nearly free, because it competes with evenings. Coffer handles the contracting slice end to end (invoices, payment tracking, the set-aside math at your marginal rate, records that survive to the IR3) while your salary carries on untouched. If the gig grows into the job, nothing needs rebuilding.