Most contractors and freelancers find it tough to work out exactly how much tax they’ll need to pay. Most tax calculators are set up for permanent employees working PAYE jobs, and so aren’t accurate for the self-employed.
At Hnry we decided to create our own tax calculator, specifically for self-employed freelancers, contractors and sole traders. It will calculate out how much tax you’ll need to pay across the main tax types.
Key Taxes for the Self-Employed:
- Income Tax - Any self-employed income you earn will need to have Income Tax paid on it. There is no ‘tax free’ threshold in New Zealand, and therefore any income you earn as a contractor or freelancer will be taxed. IRD calculate your income tax rate by summing the total of all your sources of income (including PAYE/Salary jobs, together with self-employed income, investment income etc) and then applying their standard tax rates. The income tax rates for PAYE earners and self-employed individuals are exactly the same.
- GST - If you earn over $60,000 per financial year just from your self-employed income (i.e. not including any Salary/Permanent income) then IRD will require you to register for GST. When you are registered for GST, you will be required to charge your customers an additional 15% on top of the cost of your goods and services, and this 15% is payable to IRD whenever you file your GST returns. If you make business purchases, the GST on any business purchases will reduce the amount of the GST you’ve collected that will be payable to IRD. For more details on GST, check out our Guide to Contractor and Freelancer GST
- ACC - Any income you make from self-employment is also subject to ACC levies. The exact cost of your ACC levies will depend on the type of work you do. If you also earn income from PAYE/Salary work, then you will already be making ACC contributions as part of your PAYE taxes, and therefore any ACC levies on your self-employed income will be in addition to that. It’s worth noting that there are annual limits for ACC levies, over which you won’t be required to make any further payments. N.B. For our calculator below, we have assumed an average ACC levy rate, given that there are many various ACC levy rates based on the type of work you do, and the associated risk.
- Student Loan - If you currently have a Student Loan, and you are earning over the annual threshold of $20,020, you will be required to make repayments on that loan at the standard IRD rate of 12%. This is the same for your contracting and freelancing income, even if you also have a PAYE job at the same time.
Ready to find out how much tax you’ll need to pay? Just use our calculator below to get the totals 👇
DISCLAIMER: The figures provided above are indicative, and are solely based on the information provided
Once you’ve seen how much your taxes will cost you, it can be hard to consistently work out how much to set aside every time you get paid, so that you don’t put away too much or even worse, too little. A few years ago, the founders of Hnry got to exactly this stage. We realised that we were spending hours trying to work to how much tax to set aside each month. Our old accountants had told us ‘just put aside 33% to be sure’ - but that sort of inaccuracy just wasn’t good enough. We wanted to make sure that we only paid exactly the right amount of all our taxes every time we got paid. That’s why we created Hnry - to take care of all the tax admin for contractors and freelancers, so that they could spend their time and money on far more worthwhile things!
If you’re interested in finding out how using Hnry could save you money, hassle and time, check out the links below.