In the last 10 years, there has been a significant rise in the number of people taking advantage of the contract job market. Before you join them, there are some important things to know:
Finding Work
As a contractor, you’ll be responsible for sourcing your own jobs. This means you need to:
- maintain a network of contacts;
- regularly engage with past clients; and
- grow a strong personal brand to maximise your future potential contracts.
As a contractor, your reputation is everything – and you’re only as good as your last job. Having good relationships with recruitment agencies is critical to building a solid pipeline of work.
Getting Professional Support
Contractors are responsible for their own tax and financial admin, and it’s important to make sure you don’t get caught out by this. An accountant might be able to help you keep on top of things – they’ll calculate your tax at the end of the year, file your tax returns, and let you know how much tax you need to pay.
The downside is accountants will only deal with your Income Tax and GST – they won’t help you with things like ACC, Student Loan, Professional Insurance, and they can’t make any payments for you. That means it’s still up to you to save the right amount of money throughout the year so you can pay your tax bills, and to make accurate payments on time to avoid penalties.
Setting up as a Contractor
Becoming a contractor is very simple. It’s a common misconception that all individuals are required to register as a business (or to be registered for GST), to become a contractor – however that’s not the case. As a contractor you can operate as a sole trader without needing to go through the hassle and paperwork of registering a business. As a sole trader, you can still trade under a Trading Name, claim business and home office expenses, register for GST, and pay the same income tax rate you would if you were a registered business. A lot of contractors that register as a business discover that it’s unnecessary – and that it adds more tax filings and compliance costs for no real benefit.
Handling your Taxes
It’s important to know which taxes you’ll be subject to, how much they will cost, and when they are due. The most common taxes you’ll be subject to as a contractor are:
- Income Tax: comprising regular payments such as Withholding Tax, Provisional Tax and Terminal Tax
- GST: if you earn over $60k in contracting income per year, you’re required to charge an additional 15% on top of your services, payable to IRD
- ACC levies: a percentage of your income is payable to ACC based on the type of work you do, up to a certain threshold
- Student Loan: if applicable, charged on net income earned over a set threshold
Income Tax returns are required to be filed annually, with GST returns required every 1, 2 or 6 months.
What Hnry does (and why it’s WAY better than an accountant)
No-one becomes a contractor because they love tax and financial admin – in fact the stress and burden of financial admin are often cited by contractors as the worst part of being independent.
That’s where Hnry comes in. Our mission is to make contracting simple, affordable and accessible for everyone.
As a registered Tax Agent, Hnry does all the things that traditional accountants do, as well as all the things they don’t do. From tax payments and filings, through to invoicing, expenses and professional insurance – Hnry does it all. Thousands of Kiwi contractors use Hnry to take away the stress and burden of that financial admin, so that they can focus on doing what they love.
If you’re thinking about going contracting, chat to the team at Hnry and get peace of mind right from day one.
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