A beginners guide to starting a new business in New Zealand

What I go through with people when they are looking into starting a business. Sole trader or company, what to charge, GST, ACC, how much tax to put aside, keeping the work coming in, and more.

The following guide is an expanded level of detail of what I go through with people when they are looking into starting a business. It may not be right for everyone, but I’ve tried to cover off the questions that keep popping up. You don’t have to have everything perfect, as a good accountant can guide you through the process no worries, but getting it right from the beginning helps you to plan correctly and makes every year after that easier.

Half of new businesses in NZ are closed within roughly 5 years. There are many reasons why this could be the case, a better job offer, the contract was only for a short period of time, or maybe they had to move and couldn’t take the business with them. But the story is usually around mis-managed cashflow – either not getting in enough because you aren’t looking after your funnel of new work, or you haven’t put enough aside for the various taxes you will need to pay – year 2 can be rough if you haven’t kept up with your tax savings!

Sole trader or company?

The usual advice is that once you’re earning around $80,000 you should incorporate a company, because the company rate is 28% and your top personal rate is 39%.

That only works on profit you leave in the company. If you draw it out to live on, which is what almost every one-person business does, it gets taxed at your personal rates anyway. The 28% only becomes a timing difference, a way to defer paying income tax, not a saving.

So don’t start with the tax. Start with two questions:

How much legal liability are you taking on? If you’re contracting: on other people’s sites, or doing work where a mistake could cost a client real money, a company puts a legal wall between the business and your personal assets. That’s usually the stronger reason to incorporate than anything on the tax side. Good insurance can, in most circumstances, mitigate that liability as a sole trader, but that’s a conversation to have with an insurance broker.

Will you actually retain profit? If you’re building up stock on hand, buying machinery/other assets to improve productivity, or hiring other employees, the 28% rate deferral is a real saving. If everything comes straight back out as drawings, it isn’t.

Costs of a company. Companies Office fees are $11.50 to reserve a name and $136.55 to incorporate, then $57.20 for the annual return each year. Add an accountant’s time to set it up and file the return. You’ll also need a set of financial statements and an IR4 each year, as well as an IR3 for each shareholder – all of which a sole trader doesn’t have. There are extra costs associated with company compliance which will vary from accountant to accountant.

What being a director of a company commits you to:

The Companies Act 1993 puts these duties on you personally, not on the company:

s131 act in good faith and in what you believe is the company’s best interests
s133 use your powers for a proper purpose
s134 comply with the Act and the constitution
s135 don’t trade in a way that creates a substantial risk of serious loss to creditors
s136 don’t take on obligations unless you reasonably believe the company can meet them
s137 exercise the care, diligence and skill of a reasonable director

You also keep a share register and company records at the registered office, and file an annual return every year. The annual return is not a tax return – people mix those two up constantly, and missing it gets you struck off the register.

You can find out more information about your obligations here. Having an accountant prepare things for you unfortunately doesn’t absolve you of anything!

Two things worth knowing before you incorporate a company

Limited liability operating as a company is thinner than it initially seems. Your bank will want a personal guarantee on the overdraft, your landlord on the lease, your trade suppliers on the account. Against those creditors, limited liability operating as a company doesn’t do much. But it can protect you from third parties who can’t demand a guarantee, and limits your liability to the assets held within a company (as long as you stuck to your duties as a director mentioned above) which is exactly the risk most contractors are worried about, so it still does its job.

Watch your shareholder current account. You take drawings through the year, and if taxable profit end up lower than the drawings you took out, now you owe the company money (called an overdrawn current account). You have to keep in mind you and the company are separate legal entities, even if you have complete control over the money. That means either being charged interest at the prescribed rate or a deemed dividend – a tax bill on money you’ve already spent. It’s the most common surprise in year two of a new company, and it’s avoidable if you set your drawings deliberately rather than by what’s sitting in the bank account.

The flip side is worth knowing too: when you pay company expenses personally, or claim home office costs, that builds up a loan from you to the company. That balance sits there until there’s enough cash in the business to start paying it back to you, tax-free, or to take as extra drawings.

What you actually need to charge

The advice you’ll see most often is to take your salaried equivalent and add about 20%. That number will put you out of business.

Here’s my maths: Say you want $85,000 a year before tax, doing what you used to do for a wage.

Start with the hours you can actually bill:

	Hours
52 weeks × 40 hours	2,080
Less 4 weeks annual leave	−160
Less 11 public holidays	−88
Less 5 sick days (You can change this to 10, but that’s rare for self-employment!)	−40
Available	1,792
Less 25% for quoting, travel, invoicing, admin, marketing, chasing debtors	−448
Billable hours	1,344

Then add what it costs to be in business. Vehicle $9,000, insurance $2,500, tools and equipment $3,000, phone and internet $1,700, software $900, accounting $1,200, ACC $2,200, marketing $1,500, home office $1,500: call it $23,500.

Then divide: $85,000 + $23,500 = $108,500 ÷ 1,344 hours = roughly $81 an hour.

Add 10% for reinvestment and the jobs that don’t get paid, and you’re at $90 an hour, plus GST.

That same $85,000 as a salary is $40.87 an hour. Your rate isn’t 20% higher. It’s more than double.

Two things to note. GST sits on top of that rate, so if you’re quoting to consumers rather than businesses, the Fair Trading Act requires your advertised price to include it. If the number you land on is more than your local market will pay, the answer is fewer and better-priced jobs, or a different niche. It isn’t to work for less than it costs you, unless that it worth it for other goals such as lifestyle.

Not sure what you should be charging?

Send me your numbers and I will run the calculation through with you, properly, for your situation.

GST

You have to register once your income goes over $60,000 in any 12-month period, either looking back over the last 12 months, or looking forward if you expect to pass it. The rate is 15%, and don’t consider it your money – it’s just money you are collecting on behalf of the government. So once you are registered, automatically 15% of your monthly income should go into a GST savings account. There will be some left over at the end of a GST period due to claiming GST back on expenses, but until you have a handle of what your regular expenses will be, keep that figure at 15%.

Under $60,000 income it’s optional, and at that point the right answer depends entirely on who your customers are.

Selling to businesses? They claim the GST back, so registering costs them nothing, and you get to claim the GST on your setup costs: tools, vehicle, laptop, professional fees. Usually worth doing.
Selling to consumers? Registering is either a 15% price rise your customers feel, or about a 13% cut to your own margin. Usually not worth doing, whatever you read about looking more established.
Mostly exempt income? If you have a business that provides services overseas (a contractor, or e-commerce etc) then overseas sourced income is typically ‘zero-rated’ for GST, yet you can still claim GST on your NZ based expenses. This is a bit more of a niche question, and worth discussing with an accountant whether it’s worth registering or not.

There are two more choices that can matter:

How often you file. I put most new clients on 2-monthly filing for admin burden and cashflow management purposes. Six-monthly is available under $500,000 of sales and means fewer returns, but this is generally only something I’d recommend if you (or your partner) like doing admin and are good at saving.

Invoice or payments basis. On the payments basis (available under $2m of turnover) you account for GST when the money actually gets paid or received. On the invoice basis you account for it when you issue the invoice, so you can be paying GST on invoices your customers haven’t paid yet. If you’re a business with slow paying customers, that difference is significant and can kill your cashflow.

One to know about before you need it: if you drop back under the threshold later and de-register, you have to account for GST on the assets you still hold: the ute, the tools, the phone. The upfront GST claim is great, and assets usually decrease in value over time so it’s still worth it, but it’s something to be aware of if you plan on winding up.

Income tax, and the second-year squeeze

Income tax is paid on your net profit (income less deductible expenses), and for most small business owners regardless of whether you run as a company (paying yourself a shareholder salary to cover off drawings taken during the year) or a sole trader, you will be paying at individual tax rates.

In your first year you generally won’t pay provisional tax. That doesn’t mean the year is tax-free. The bill just lands later right next to your second-year provisional tax instalments.

For a 31 March balance date, year two looks like this:

28 August – first provisional instalment for year two
15 January – second provisional instalment for year two
7 February – terminal tax for year one (7 April if you’re with a tax agent)
7 May – third provisional instalment for year two

The January and February dates are three weeks apart, they follow the quietest trading period of the year, and together they’re usually the biggest tax event a new business has faced. Plan for it in your first winter, not your second summer.

You become a provisional taxpayer once your residual income tax goes over $5,000, which is quite a low threshold for full time work. If you have under $60,000 of residual income tax on the standard option (most small businesses will be well under this, and if you are getting close then you should be getting regular reporting to give you accurate figures throughout the year), Inland Revenue won’t charge you interest until after your terminal tax date. If you pay late, use-of-money interest is currently 8.97% on underpayments (they only credit you 2.25% the other way), plus late payment penalties.

Worth knowing: in your first year, if you make a voluntary payment before balance date and apply by your filing date, you can claim the early payment discount of 4.25% for the 2027 income year. If you’ve got the cash sitting there, that’s a better return than a bank savings account, but not as good if you have a revolving credit mortgage.

How much tax to put aside

Work off your monthly profit — what’s left after your business costs and after you have taken 15% GST out (if you’re registered). Then:

Monthly profit	Put aside
Up to $5,000	20%
$5,000 – $8,000	25%
$8,000 – $15,000	30%
Over $15,000	Talk to an accountant

These figures generally cover your income tax and your ACC levies together, though they won’t be exact. Two things to add on top if they apply to you:

Student loan – another 12% of anything over $24,128 a year. Just use 10% of all your income if you need an easy figure to add to your income tax savings.
High-risk work – if you’re in roofing, scaffolding, forestry or heavy construction etc, your ACC work levy is roughly double the average, so add another couple of percent.

These are deliberately rough. Once you’ve got a few months of real figures an accountant can work out your actual percentage, and then you can set it and forget it until the next annual review (or you have noticeable changes either up or down).

Use three bank accounts, not one. An operating account, a GST account, and an income tax account. Move the GST across (usually) the day the money lands, or at the very least each week before you pay yourself a ‘wage’, as it was never yours. Move your income tax percentage across ideally weekly after doing a weekly profit and loss, but do this at least monthly. It’s the single most effective thing you can do from a cashflow management perspective, and it costs nothing.

For reference, the individual income tax rates are 10.5% to $15,600, 17.5% to $53,500, 30% to $78,100, 33% to $180,000, and 39% above that. The company rate is 28%.

Want your actual percentage, not a rule of thumb?

Once you have a few months of real figures I can work out the exact number to put aside, and then you can set it and forget it.

ACC

You’ll pay three levies as a self-employed person: the work levy, which depends on the classification unit you’re coded to (across industries it ranges from about $0.20 to $3.40 per $100 of net taxable profit), the earners’ levy at 1.75% per $100, and the Working Safer levy at $0.08 per $100. This is the figure I mentioned above that gets saved with income tax, as it usually gets paid with PAYE out of wages, and relates directly to your net profit just like income tax does.

Some other important things to note about ACC:

Your default cover is close to useless in year one, or during recession/bad income years.

Standard CoverPlus pays weekly compensation based on 80% of your last completed year of liable earnings, and in year one you don’t have one. Even if the first financial year is only a part year, you may not be under enough cover. Break your leg in month four and you may get very little.

CoverPlus Extra lets you agree a fixed income cover amount up front, so you know what you’d actually be paid, and your levy stops moving around with a volatile profit figure. It’s a month-one conversation, not a month-eleven one.

ACC covers accident, not illness. If you get seriously ill, ACC pays nothing. That’s what income protection insurance is for, and the two aren’t alternatives.

Also worth checking is the classification unit ACC has coded you to. New registrants get coded wrong reasonably often, and two people on identical income can pay quite different work levies as a result.

One thing that catches people out on cash flow: ACC bills you separately around August or September each year, and it’s based on the income in your return for the prior income tax year ended 31 March. So, in your first year no invoice turns up at all, which means the ACC portion of what you’ve been putting aside needs to still be there when it does. If you are in a high risk sector, it may be worth keeping your ACC savings in yet another bank account.

Insurance

I’m not an insurance adviser and I won’t recommend a specific policy or insurer. But you should know what the categories are, and if you don’t already have a broker I’m happy to point you to one I trust.

Public liability – damage you cause to other people’s property or to people. Usually the first policy a trade business needs.
Professional indemnity – This is normally claims-made: it responds to claims made while the policy is live, not to work done while it was live. If you stop trading or sell up, you need run-off cover, or a claim about work you did five years ago finds you personally.
Statutory liability – defence costs and, where they’re insurable, fines under health and safety and other legislation. You have liability from your first day of trading whether or not you employ anyone, and this is probably one of the more under-bought covers in my experience.
Income protection – the income protection gap that ACC leaves. If you go with Coverplus Extra, make sure you let the broker know this.
Business interruption – to keep the fixed costs paid when you can’t trade for whatever reason.
Contents and Vehicle Insurance – the obvious ones. Check the sums insured are current, not what things cost four years ago.
Employers liability – if you take on staff.

Main contractors, councils and government agencies set minimum public liability and PI limits in their contract terms, often $1m, $2m or $5m. Read the insurance clause before you quote, not after you’ve won the job.

Bank accounts

As a sole trader you’re not legally required to have a “business” account. What you do need is separation – every business transaction in one account, with nothing personal mixed in except for drawings. This will help make reporting, GST, and income tax a lot simpler to manage whether you are doing it yourself, or getting an accountant to.

For a lot of sole traders a second personal account in your own name takes a couple of minutes to setup. Check your bank’s terms though, because some personal accounts prohibit business use. If/once you’re GST-registered and dealing with trade suppliers a business account starts earning its fee.

As a company you can, as an interim solution, run things through a personal account until a business account is up and running – but only in the short term. The money belongs to a separate legal person, and running a company through your personal account causes problems such as overdrawn current accounts and in particular name mismatches when customers go to pay your invoices.

Allow time. Opening a company bank account means customer due diligence under the AML/CFT Act: ID for every director and 25%+ shareholder, beneficial ownership, source of funds. It can take days to weeks. Start it before you plan to trade/as soon as you register your company, not the week you send your first invoice.

Software

It depends on your volume, but the first answer is sometimes “not yet”.

If you are under the GST threshold, a service business, with not many transactions: a spreadsheet and a dedicated bank account is fine and perfectly reasonable. Don’t pay a subscription to solve a problem you don’t have.
Are you GST-registered? You will want bank feeds to reconcile, and the ability to easily calculate your GST return from the software, otherwise things get messy quickly. Xero is what I use with most clients and what I’d point you to by default.
If you are earning roughly $60,000-$100,000 gross income as a sole-trader contracting or providing services: Hnry is worth a look. It charges you 1% of your gross income to withhold and pay your taxes (income and GST), which removes the most common failure rate for small businesses. At the time of writing, they can’t handle companies, employment, stock or do job costing, but in that band, for that kind of business, it does the job well.
Below $60,000 if you aren’t GST registered I’d still say generally things aren’t complex enough to require software – but like before, if you aren’t great at admin or saving for tax, then Hnry can work well in this income level too.

Above $100,000 before expenses, and you are starting to get into territory where software + a dedicated accountant is probably the better option for the best use of your money.

Trades with materials and job costing: accounting software on its own finds it hard to tell you which jobs made money. If you want to truly understand profitability, or have staff running jobs without your input, you will want job management software integrated with your accounting software.
Payroll and PAYE: If you are employing staff and need to start running payslips and PAYE returns, you should look at options such as Thankyou Payroll, PaySauce, or Crystal Payroll. I am happy to go over the options and find what works best for you.

I don’t receive commission from any software provider, so I can give you the best option for your situation. Yes, I really do send people to solutions such as Hnry and Good Numbers which cut me out of the picture.

If you take on staff

Every employee needs a written employment agreement, signed before they start. If you want a 90-day trial period it has to be signed before the first day, there’s no fixing that afterwards.
Keep in mind the minimum wage, which as at 1 April 2026 is $23.95 an hour for adults, $19.16 for the starting-out and training rates.
KiwiSaver: compulsory employer contributions went to 3.5% on 1 April 2026 and go to 4% on 1 April 2028. Employees aged 16 and 17 are now included.
Four weeks’ annual leave after 12 months’ continuous employment, though in practice people can start taking it out of holiday pay before it turns into annual leave. Public holidays worked get paid at time and a half, or paid at normal rates if not worked and they have a pattern of otherwise working that day.
You’ll need to register as an employer, deduct PAYE and payday-file with Inland Revenue. Generally speaking a good software provider handles a lot of the compliance burden, but doesn’t absolve you of any errors.

If you’re engaging contractors rather than employees, note that the contractor gateway test came into force on 21 February 2026 and changes how that relationship gets assessed. Most content written before then is out of date on it. Talk to me before you create a contractor arrangement.

Home office

This is an easy deduction that gets missed because it’s not a direct cost to a business. You can read more here from the IRD https://www.ird.govt.nz/home-office-expenses. There are two methods:

The direct calculation. Work out the floor area of the room you’ve set aside for work as a percentage of your house, then claim that percentage of:

Mortgage interest or rent (no GST claim, but deductible for income tax)
House and contents insurance
Water and land rates
Home phone and internet (usually 50%)
Electricity and gas
Security costs
Repairs

Less commonly claimed are costs like cleaning materials, but simply because they are small and harder to track.

Inland Revenue’s square metre rate, which is $57.30 per m² for the 2026 income year and covers utilities only, with mortgage interest, rates and rent claimed separately.

Almost always the direct calculation comes out better overall, because you can’t claim GST using the square metre rate method. If you can’t track down the underlying bills, the IRD rate does mean less information to gather, because land rates can be tracking using a council’s RID. Where possible, I compare the two methods each year in case the IRD rate does end up better for you.

Vehicle

Inland Revenue’s mileage rates for the 2025-26 year can be used for simplicity, but you will need to keep a constant logbook to calculate actual business KMs travelled, and you can’t claim the costs for GST. If you want to claim a percentage of actual vehicle costs, you will need to keep a logbook for three months to establish your business-use percentage which then lasts three years if your business use doesn’t change by more than 20%

Asset vs Expense

There is an IRD guide here about the value thresholds. Anything under $1,000 can generally be expensed outright; over that it becomes a depreciable asset and you claim the depreciation instead. Investment Boost adds an upfront deduction along with some complexity, which since 22 May 2025, lets you deduct 20% of the cost of new assets up front with normal depreciation on the rest. If you’re buying vehicles, plant, or equipment to get started, check whether it would qualify or not.

Entertainment

This is the one cost people get wrong a lot. The IRD have a guide here, but it’s worth a chat with an accountant to clarify whether an expense in this area or wholly or partially deductible.

Keeping the work coming in

Most businesses that close don’t close because the work was bad. They close because money ran out, and nobody noticed until the bank account said so.

The pattern is nearly always the same. You win a good job, you get busy, and you stop quoting because there’s no time. Six weeks later the job finishes and there’s nothing behind it. Now you’re quoting flat out with no income coming in, and by the time the next one starts you’ve had a month of nothing. Then you’re busy again, and it repeats.

The fix isn’t necessarily clever marketing. It’s doing a small amount every week whether you’re busy or not.

Know your lead time. For most trades, the gap between someone first making contact and the money actually landing in your account is six to twelve weeks: enquiry, quote, they think about it, you schedule it, you do the job, you invoice, they pay on the 20th. That means the marketing you do this week pays you in about two months. If you only start looking for work when you’re quiet, you have already locked in two lean months.

Four numbers a month. You don’t need a CRM to manage this, though it does make things easier. A page in a notebook will do as a basic option:

Enquiries received
Quotes sent
Quotes won
Invoiced

After three or four months you will know your conversion rate and your average job size, and those two numbers let you work backwards.

Working backwards. Say you need to invoice $12,000 a month, your average job is $3,000, and you win about 40% of what you quote. That’s four jobs a month, so you need ten quotes going out every month, so you need a bit more than ten enquiries coming in. If you’re only getting five, no amount of working harder on the tools will fix it.

Where the work actually comes from. For most small NZ businesses, in rough order: past customers, referrals from other trades and businesses working in the same space, a properly filled-out Google Business Profile with real reviews on it, and local Facebook groups. Nearly all of it is free. A good website can also add to legitimacy, but also give you ownership of a marketing asset while Google or Meta can take you down sometimes randomly.

As awkward as it can feel, ask every happy customer for a review while you’re still on site or doing a review with them. Trust is a real commodity that’s hard to build, but easy to lose, so positive reviews from actual customers count for a lot to someone who doesn’t know you.

Answer quickly. For most trades, speed of response wins more work than price does. The person who replies the same day gets the job ahead of the one who replies on Thursday.

Take a deposit. For anything with materials in it, a deposit before you start protects your cash flow and quietly filters out the customers who were going to be a problem paying. It works alongside the terms of trade mentioned below. And invoice the day the job is finished rather than at the end of the month, because winning the work and getting paid for it are two very different things.

Watch your concentration. If one customer is more than about a third of your income, they aren’t really a customer, they’re sort of like an employer but without any of the protections that come with being an employee. It’s worth knowing that going in, and worth spending some of your quieter weeks fixing it.

Finally, keep an eye on the calendar. Most trades go quiet over December and January, and that is entirely predictable. Which means the time to be chasing January work is October, not the week after New Year.

Other Compliance

Records: You must keep all records for seven years. Invoices, receipts, bank statements, contracts. Electronic is fine; but check to make sure any offshore storage such as Dropbox, Google Drive, OneDrive etc. has had Inland Revenue approval.
Privacy Act 2020. If you collect customer details, take photos on site or run a booking system, you have obligations.
Fair Trading Act 1986. Your pricing and advertising claims have to be accurate, and consumer prices have to include GST.
Terms of trade. If you supply goods on credit, written terms with retention of title and a PPSR registration are the cheapest debt protection a small supplier can get. Almost nobody sets them up until after they’ve been burned.
Health and safety. You’re in business and liable from day one.

This is just a basic overview of some of the other laws you might find yourself having to consider. If you are, definitely discuss these and others in more depth with your accountant.

Your first checklist

Decide sole trader or company
Sort your IRD number (your personal one as a sole trader, a new one for a company)
Register with ACC, and check the classification unit they’ve coded you to
Look at CoverPlus Extra before you need it
Open your bank accounts – at least operating, GST, income tax
Work out your real charge-out rate before you quote anything
Talk to an insurance broker, and make sure you get cover on whatever your contracts require
Decide on software, including the option of not buying any yet
Write your terms of trade
Put 28 August, 15 January, 7 April and 7 May in your calendar as income tax payment due dates. Add 28 June and 28 October, and 28 February if you are registered for GST. The August, January and May dates double up as both provisional tax and GST due dates.

This guide is general information, current as at 31 August 2026. It isn’t advice for your particular situation, and rates, thresholds and levies change regularly. Nothing here is a recommendation of any insurance, investment or financial product. Talk to me, or to your own adviser, before you act on any of it.

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