Contractor tax in NZ: how much to set aside

What the money has to cover

Income tax is worked out on your total income for the tax year, from 1 April to 31 March, from every source: wages, schedular payments and self-employed earnings together. These are Inland Revenue's rates from 1 April 2025:

Business expenses you can claim lower the tax you pay, so keep every receipt. On top of income tax come ACC levies, student loan repayments if you have a loan, and, once you are registered, GST, which was never your money in the first place.

Schedular payments and the IR330C

Schedular payments are payments to contractors for certain kinds of work, mainly the supply of labour. The person paying you deducts tax before you get the money, much like PAYE, at a rate you give them on a Tax rate notification for contractors (IR330C). Your tax code is always WT.

• The standard rate for your kind of work, from the table on the form.
• A rate you choose, as long as it is at least 10%, or at least 15% if you are a non-resident on a temporary work or entry visa.
• A tailored tax rate that Inland Revenue works out for you, for example because your business expenses mean the minimum rate would take too much.
• A certificate of exemption, where you pay your own tax instead of having it deducted.

If you do not give your payer an IR330C, they must deduct tax at the no-notification rate of 45% (20% for a non-resident contractor company). You need a separate IR330C for each source of contracting income, and you must tell your payer if your rate changes. If your work is not on the list, you can still ask to be paid this way: these are voluntary schedular payments, and your payer has to agree in writing.

Schedular tax is a prepayment, not the final answer. You generally file an income tax return at the end of the year, and you get a refund or have tax to pay depending on whether the rate you chose was right. Inland Revenue's tax rate estimation tool for contractors helps you pick one close to what you will owe.

Provisional tax

If you had to pay more than $5,000 of tax at the end of the year (your residual income tax), you pay provisional tax the following year, in instalments, instead of one lump sum.

• The standard option is used unless you choose another. Your provisional tax is last year's residual income tax plus 5%, or the year before's plus 10%, depending on when you file.
• Three instalments, due 28 August, 15 January and 7 May if your balance date is 31 March. If you are registered for GST and file six-monthly returns, it is two.
• Other options exist: estimation, the ratio option and the accounting income method, which follows your profit through the year.

Your first year needs planning. On the standard, estimation or ratio option you pay no provisional tax in your first year in business, but the year is not tax free: its tax is usually due by 7 February the following year, or 7 April if you have a tax agent. That can land at the same time as your first provisional tax instalment for year two. Inland Revenue lets you make voluntary payments during the first year to spread the cost, and you may earn an early payment discount; the rate for the 2027 income year is 4.25%.

ACC levies

Employees pay the earners' levy through PAYE. If you are self-employed or a contractor, ACC sends you its own invoice after you file your tax return, using the income details it gets from Inland Revenue. It covers three levies:

• The earners' levy, for injuries outside work. For 1 April 2026 to 31 March 2027 it is $1.75 per $100 including GST, on earnings up to $156,641 (Inland Revenue; ACC quotes the same rate as $1.52 per $100 before GST).
• The work levy, for injuries at work. It is different for every business, based on the risk of injury in your kind of work, your claims history and your liable income.
• The Working Safer levy, collected for WorkSafe, currently $0.08 per $100 of liable income.

Because the invoice arrives after the year is over, the money for it has to come out of the year's payments. ACC's levy estimator on its website gives you an estimate for the year.

Student loan

Contracting and self-employed income counts as adjusted net income, so you may need to make the repayments yourself. You repay 12% of every dollar over the annual repayment threshold of $24,128, counting your salary or wages and your adjusted net income together.

• You have an end-of-year repayment if your adjusted net income is $500 or more and your total is over the threshold.
• If that end-of-year repayment is $1,000 or more, you make interim repayments during the next tax year.
• Self-employed people with a student loan may have repayments in their first year of business; Inland Revenue asks you to contact it to find out.

GST

You must register for GST if your turnover from your work was at least $60,000 in the last 12 months, or you expect it to be at least $60,000 in the next 12. You must also register if you add GST to your prices, and you can choose to register below $60,000. The rate is 15%.

• Filing frequency: monthly, two-monthly, or six-monthly if your sales are under $500,000.
• Due dates: a return is due by the 28th of the month after the period ends, except that the period ending 31 March is due by 7 May and the period ending 30 November by 15 January. There are no extensions, and you file even when there is nothing to report.
• Accounting basis: on the payments basis, open to you if your sales are $2 million or less, you account for GST when you are paid. On the invoice basis, you account for it when you invoice, even if the client has not paid yet.

The GST you collect is passed on to Inland Revenue; it was never yours to spend. Moving it out on the day keeps it safe.

A set-aside habit

1. Open a separate account that you never spend from.
2. Move all the GST from each payment, if you are registered.
3. Move a share for income tax. If schedular tax is already deducted, top it up only if your rate is lower than what you will owe. Setting aside at your top tax rate errs on the safe side, because the first part of your income is taxed at lower rates.
4. Add 1.75% for the earners' levy, something for the work levy, and 12% of anything over the student loan threshold if you have a loan.
5. Put the dates in your calendar: GST returns, provisional tax instalments and your end-of-year return.
6. Keep your records for seven years, as Inland Revenue requires.

Inland Revenue's estimation tool, its provisional tax guide and an accountant can turn this into a figure for your own situation. If you are not sure whether you are a contractor or an employee at all, Employment New Zealand can help on 0800 20 90 20.