Income tax and ringfencing

Income tax is the slow-burn liability for a NZ contractor: every dollar you earn from a paid invoice has tax attached to it, but IRD only collects it in instalments (provisional tax) and a square-up at the end of the year (terminal tax). Coffer's job is to keep the running total visible from the moment a client pays you, so the cash sitting in your account is honest about what's yours and what's IRD's.

How ringfencing works

When you mark an invoice paid, Coffer takes the ex-GST amount, multiplies it by an income tax rate, and adds the result to your income tax ringfence. That ringfence is a running total visible on your dashboard. When you log a provisional or terminal tax payment to IRD, the ringfence shrinks by the amount paid.

The rate applied to each invoice is locked at the moment you mark it paid, based on your projected income at that time. If your income changes later, Coffer keeps that invoice's set-aside fixed and adjusts the rate on future invoices instead. This keeps past paid invoices stable as your year unfolds, and any catch-up you owe rides forward on new income rather than retroactively re-valuing invoices you already ringfenced against.

The rate Coffer uses depends on which mode you're in:

• Flat rate(Settings > Income tax rate). Defaults to 33.7%. Multiplies every paid invoice's ex-GST amount by this single rate. Simple, fast, and a reasonable approximation for most contractors above the $60,000 GST threshold.
• Bracket-aware (set in the welcome wizard or via Settings). Coffer projects your annual income (blending your stated expected income with your year-to-date actual), walks the NZ income tax brackets, and computes an effective rate from the result. The dashboard ringfences each paid invoice using that effective rate. As more of the year elapses, the projection naturally converges on your actual run rate.

The NZ income tax brackets Coffer uses

Bracket-aware mode walks the post-July-2024 IRD thresholds:

• $0 to $15,600 at 10.5%
• $15,601 to $53,500 at 17.5%
• $53,501 to $78,100 at 30%
• $78,101 to $180,000 at 33%
• $180,001 and above at 39%

Brackets are progressive: each portion of your income is taxed at its bracket's rate, not the whole amount at one rate. A contractor projected to earn $120,000 in the year has an effective rate around 24.6%, not 33%.

Paying IRD: provisional and terminal tax

Once your tax bill for a year is large enough, IRD collects the next year's income tax in instalments during the year (provisional tax), plus a final square-up after you file your IR3 (terminal tax).

Standard-option provisional tax instalments fall on 28 August, 15 January, and 7 May for a 31 March balance date (Coffer's default). If you're on six-monthly GST filing, you only have two instalments: 28 October and 7 May. If you're in your first year of self-employment, you don't pay provisional tax for the first year at all; toggle the “pays provisional tax” setting off until your second year.

When you make a provisional or terminal tax payment to IRD, log it in Tax events as a provisional tax or terminal tax payment, with the amount paid and a period label (e.g. “Provisional 2 2026”). The dashboard's income tax ringfence drops by the amount you logged.

When the ringfence goes negative

If you pay IRD more than Coffer has accrued in the ringfence (a slight over-payment, or a terminal tax bill that included income Coffer didn't see), the ringfence goes negative. That's deliberate: it means IRD owes you the difference, and your “Yours to spend” figure on the dashboard quietly accounts for it.

Same applies in reverse: if you under-paid an instalment, the ringfence stays positive and tells you exactly how short you are.

A note on ACC

ACC levies are a separate charge on self-employed earnings, based on your line of work and your income for the year. ACC invoices are sent directly to you and paid separately from income tax.

Coffer ringfences ACC on its own, as a third set-aside alongside GST and income tax. Tell Coffer your ACC classification in Settings and it estimates the levy and sets money aside as you get paid. Now that ACC is set aside on its own, check your income tax rate isn't also padded for ACC, so you're not covering the levy twice. See ACC levies for the full picture.