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 simple. Two things trip people up. One is a myth about secondary tax. The other is which rate your side income actually pays. This guide sorts both out.

Side income isn't secondary tax

Secondary tax codes exist for people with two salaried jobs, 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. It's the same machinery as any sole trader, at whatever scale you're operating.

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, so 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, and the salary doesn't count towards 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: this 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, and 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 in place.

How Coffer helps

With a side gig, tax admin has to be almost no work, because it competes with your evenings. Coffer handles the contracting side: invoices, payment tracking, the set-aside math at your marginal rate, and records that carry through to your IR3. Your salary stays out of it. If the gig grows into your main job, you won't need to rebuild any of it.