It is what it says on the tin – a sole trader is a business structure where a single person does all the trading. It’s easy to become a sole trader, and much less complicated than incorporating a company.
More plainly, a sole trader is their business. They’re in charge of their hours, their working location, their salary – everything. But it also means they’re in charge of production, sales, marketing, branding, finances – the whole shebang.
Common sole-trader professions include freelancers, consultants, self-employed tradies, medical locums, and side-hustlers.
Sole traders vs. companies
Unlike companies, sole traders and their businesses aren’t separate entities. As a sole trader, you are personally responsible for any obligations or debts your business enters into.
Similarly, all profits made by your business are considered your personal income. You’ll need to include them in your individual tax return. It’s far less paperwork than what you’d have to do as the operator of a company!
📖 Want to know what the best structure is for your business? We have a quiz for that!
How to set up as a sole trader
Becoming a sole trader is pretty simple. All you have to do is start trading, solely. That’s it!
But if you want to make things more official, there are a few things simple things you can do:
- Choose a business name: This can either be your own name or a different trading name.
- Note: When using a trading name, it’s important to ensure that it is unique and doesn’t infringe on any trademarks. You can check here to find out if your name is available.
- Register the business name with the New Zealand Companies Office.
- The process typically involves providing personal details and paying a registration fee.
- Register for Goods and Service Tax (GST)
- If the annual turnover of your business is expected to exceed $60,000 in a financial year, you must register for and collect GST on behalf of the IRD.
- Read our guide on GST for sole traders to learn more.
Organising your finances
Because you’re solely responsible for your business, you’re also solely responsible for your taxes, levies, and financial admin. You’ll need to keep accurate financial records, and set money aside to cover things like your income tax bill, any leave you plan to take, any time off work due to illness, and even retirement savings.
One way to keep this simple is to just use Hnry.
Hnry is an award-winning tax and financial admin service, designed specifically for sole traders.
For just 1% + GST of your self-employed income, capped at $1500 a year, Hnry will calculate and pay all your taxes, levies and whatnot for you, including:
