Leaving a full-time job for contracting

The move from employment to contracting in New Zealand needs less paperwork than most people expect. As a sole trader you don't register a company, you don't need a new tax number, and you can start trading the day your notice period ends. What actually changes is who does the admin. Your employer used to handle tax, ACC, and KiwiSaver before money reached you, and from now on that's you. This checklist covers the setup, roughly in order.

1. Tell Inland Revenue you're self-employed

As a sole trader you use your existing personal IRD number, so there's nothing new to apply for. What Inland Revenue needs is to know that you're now earning self-employed income, so the right returns are expected from you. The simplest route is to send a message through your myIR account saying you've become a sole trader.

If a client will pay you schedular payments (common for contractors working through recruiters or labour-hire firms), they'll ask you to complete an IR330C to set the tax rate deducted from your invoices. Contractors invoicing businesses directly usually aren't in this category, but it's worth knowing the form exists so it doesn't surprise you.

2. Decide on GST

GST registration is compulsory once your turnover passes $60,000 in any 12 months, or as soon as you expect it to. Most full-time contractors cross that line, so if you're replacing a full-time salary, register at the start rather than mid-year. Below the threshold, registration is voluntary. The full trade-offs are covered in Do I need to register for GST?

3. Know what ACC is about to do

There's no ACC signup step. Your cover (called CoverPlus) starts automatically when you start self-employment. The part that catches people is the billing. ACC waits until your first tax return is filed, then invoices for the year just ended, with invoices usually going out from September. So your first levy invoice typically lands well over a year after you start, and it covers everything at once. Nothing has gone wrong when it arrives, because it was always coming. If you set money aside for it from the start, it's a non-event. For how the levy is calculated, see NZ contractor tax, explained.

4. Separate your business money

No law requires a business bank account, but a separate account for contracting income makes everything downstream easier. You get cleaner records, simpler GST returns, and an honest picture of what the business is earning. Many contractors run a second account purely for tax set-asides on top, so the money owed to Inland Revenue never mixes with spending money.

5. Set up record keeping

You must keep your invoices and expense receipts for seven years. The habit that makes that painless is deciding, on day one, where invoices live and how they're numbered, so every job follows the same path. Whatever tool you use, the test is whether you could hand a complete, ordered record to an accountant, or answer an Inland Revenue query, without spending a weekend digging through old files.

6. Keep KiwiSaver alive

Leaving employment ends your employer's contribution and the automatic deductions. Your membership carries on. Two things are worth knowing:

• The government still contributes 25 cents for every dollar you put in, up to $260.72 a year, if you contribute at least $1,042.86 between 1 July and 30 June. The contribution is only available if your taxable income is $180,000 or less.
• Nobody deducts it for you any more. You can set up a small automatic payment to your KiwiSaver provider to replace what payroll used to do. About $21 a week reaches the full government match.

7. Set your rate to carry the extras

Your contracting rate has to cover things your salary quietly included, such as annual leave, sick days, public holidays, the employer KiwiSaver contribution, and the ACC levy. A rate that just matches your old salary divided by your old hours is a pay cut. Price the whole package, then check what lands in your pocket with the free take-home pay calculator.

8. Start the set-aside habit on invoice one

There's one habit that decides how your first tax year feels. Every time an invoice is paid, move the tax portion, which is the GST plus your income tax percentage, somewhere it won't get spent. Contractors who start this on their first invoice tend to get through their first provisional tax season without a scramble, and the hub guide explains the year-one double hit that catches everyone else.

How Coffer helps

Coffer covers steps 5 through 8. You get proper tax invoices with consistent numbering and a seven-year paper trail, GST handled per invoice, and the set-aside arithmetic done for you every time you mark an invoice paid. That includes the ACC levy, quietly accruing toward that first big invoice. From your first invoice, the dashboard shows what's actually yours to spend and what's spoken for.