The age-old question – to contract or not. 0 Comments Uncategorized By admin

“That contractor is on $25 more an hour than me and we’re doing the same job!”

Sounds unfair but, before you jump into self-employment with both boots, read on…

As a contractor working for someone else, you will probably be responsible for your own tax.

Filing each year generates tax to pay. Income tax and provisional tax are the same tax — provisional tax is just a way of pre-paying your annual tax bill in several instalments.
This can be quite difficult to manage unless you have been particularly diligent in saving in advance.

One way around the ‘giant bill’ at the end of the year (income tax), or the ‘several large bills throughout the year’ (provisional) is schedular payments. Schedular payments are tax taken from your pay at source — it helps reduce any end-of-year tax bill you may have.

New tax laws have expanded schedular payment rules to all contractors. All contractors can pick the rate to have tax deducted at. New Zealand tax residents can pick any rate from 10 per cent up to 100 per cent. We recommend looking at your estimated earnings and using the Contractor calculator at IRD here.

As a contractor, you may find yourself between contracts, a business savings account to allow for any down time is also important. This means putting away more of that paycheck to cover when you don’t have work.

GST registration applies after you earn $60k p/a – and don’t forget about ACC levies!

In short, a very tempting prospect of earning more can be quickly debunked by knowing what your future responsibilities will be.

Contracting can be great; freedom, high income, own hours – but the grass isn’t always greener. If you have jumped into self-employment and are struggling, give me a call today.