How Much Tax To Set Aside NZ Sole Trader
How much tax to set aside as an NZ sole trader is not one official percent of every invoice. Inland Revenue taxes net profit on your individual return. ACC, student loan, and GST sit on different clocks.
business.govt.nz is blunt: completing your taxes is not as straightforward as setting aside a percentage of your income every time you get paid. How much you owe depends on how much you earn, whether you also have a PAYE job, and what industry you belong to. The 25% to 30% figure on MoneyFeed is a buffer people use, not a rate Inland Revenue publishes.
Start with sales minus allowable expenses. IR325: you pay income tax on your net profits. The taxable income is the net profit after deducting all allowable expenses and before any drawings. You will not get a wage. You take drawings.
Add that profit to salary, interest, rent, and other income. Inland Revenue: rates are based on your total income for the tax year. Self employment uses the same individual brackets as wages, from 1 April 2025.
business.govt.nz: you automatically get ACC personal injury cover from day one. It is called CoverPlus. Earners levy for 1 April 2026 to 31 March 2027 is $1.75 per $100 (1.75%) up to $156,641, maximum $2,741.22. The work levy still follows your industry. Use ACC’s estimation tool for the full invoice.
If you have a student loan, Inland Revenue: 12% of every dollar over the repayment threshold. For the 2026 tax year that threshold is $24,128. business.govt.nz: self employed people make those repayments themselves, including with year end income tax.
Park GST in a separate account if you are registered. Inland Revenue charges 15%. You collect it. You do not treat it as profit. Registration is a turnover test of at least $60,000, or you add GST to prices.
Official starting point
business.govt.nz tax basics for sole traders: use Inland Revenue’s free sole trader tax calculator as an indication of how much to start putting aside. Filing and clocks sit on the Self Employed Tax hub. A dollar split on net profit is on the self employed tax calculator.
Why a flat percent is not the official method
New Zealand uses progressive rates. Inland Revenue’s tax rates for individuals page: you do not pay one rate on all income. Each band has its own rate. A Dunedin designer with a PAYE job already uses the lower bands on wages. Invoice profit then sits on the leftover bands, not on 10.5% from dollar one of the side hustle.
MoneyFeed still prints a simple rule of 25% to 30% of net profit. Hnry asks how much to set aside for the annual bill, then runs brackets, ACC, student loan, and GST as separate lines. Those buffers are cash planning, not Inland Revenue’s calculation. Inland Revenue’s work out tax on your yearly income calculator uses total taxable income. It will not include IETC, PAYE already paid, or ACC earners levy.
| For each dollar of income from 1 April 2025 | Tax rate Inland Revenue lists |
|---|---|
| 0 to $15,600 | 10.5% |
| $15,601 to $53,500 | 17.5% |
| $53,501 to $78,100 | 30% |
| $78,101 to $180,000 | 33% |
| $180,001 and over | 39% |
Inland Revenue: earnings from self employment sit in that total. Some income is taxed before you get paid (wages, schedular payments, interest). Self employed profit usually is not. You pay that at year end on the IR3, unless you are already on provisional tax.
What actually goes in the set aside pot
business.govt.nz lists three taxes and levies sole traders need to plan for: income tax, ACC levies, and GST. When planning cash flow you might also need student loan repayments, KiwiSaver contributions, and the independent earner tax credit. Inland Revenue’s self employed page: you use your individual IRD number and pay tax on net profit by filing an individual income return. You can claim expenses for that business activity.
| Clock | What to park | What not to mix in |
|---|---|---|
| Income tax | Tax on net profit at the individual brackets, after PAYE and tax already taken from schedular payments. | Drawings. IR325: taxable income is net profit after allowable expenses and before drawings. IR3B: drawings are not deductible. |
| ACC | Earners levy 1.75% for 1 April 2026 to 31 March 2027, plus the work levy and Working Safer levy on the ACC invoice. | Treating earners levy as the whole ACC bill. Tradies often owe more than 1.75% because of the work levy. |
| Student loan | 12% of income over $24,128 for the 2026 tax year, on adjusted net income if you are self employed. | Assuming PAYE SL deductions already covered invoice profit. |
| GST | 15% collected on taxable supplies, less GST claimed on business purchases, if you are registered. | Spending GST because it landed in the trading account. |
| KiwiSaver | business.govt.nz: contributing at least $1,042.86 every financial year gets the full government contribution of $260.72. | Treating that $260.72 as extra tax you owe Inland Revenue. It is a savings top up, not an IR3 line. |
Inland Revenue: some income is taxed before you get paid, including schedular payments. That withheld amount is already a credit toward income tax. It is not GST. If you are GST registered, IR3B: do not include the GST portion of income and expenses when you work out net profit on that schedule. Show GST on the GST return instead.
Trap: 25% of the invoice is not 25% of profit
MoneyFeed treats 25% to 30% of net profit as the simple rule. If expenses are high, 25% of gross overstates the income tax. If expenses are tiny and you already have a PAYE salary in a high band, 25% of the invoice can be short. Run the brackets on total income, then add ACC and student loan. Do not treat GST as extra profit tax.
GST is collected money, not a slice of profit
Inland Revenue: GST is charged at a rate of 15%. You must register if you carry out a taxable activity and turnover was at least $60,000 in the last 12 months, or you expect it will be in the next 12 months, or you add GST to prices. Inland Revenue tests sales from that taxable activity, not leftover profit. Registration steps: register for GST in NZ and the GST 60k threshold guide.
business.govt.nz cake example: sell cakes for $200, add 15% GST, the new cost is $230. That extra $30 is not yours. Afirmo is right on this point: isolate GST by tracking income exclusive of GST, then add or remove 15% on the GST calculator.
PAYE job plus invoices
Inland Revenue: some income is taxed before you get paid. Self employed profit is usually not. The IR3 adds both. PAYE already paid is a credit. The leftover on the invoices is what you still need cash for. If the leftover residual income tax is more than $5,000, Inland Revenue’s provisional tax page: you pay instalments the following year. That is what the set aside pot is for in year two. Dates and methods sit on the Provisional Tax hub.
First year is still not tax free. IR325: it is a good idea in your first year of business to put money aside for tax. This will ease the cash flow in your second year of business. Do not use the monthly save table printed in that April 2022 factsheet: those bands start from 1 April 2011. Timing detail: first year self employed no provisional myth.
Use case: Anna, freelance writer (business.govt.nz)
Situation: first year after university. Self employed income $40,000. That is her only income. She has a student loan.
Student loan: $40,000 minus $24,128 = $15,872. Times 12% = $1,904.64. That sits on top of income tax on the same profit, plus ACC later.
Action: do not park only “about a quarter”. Split income tax, ACC, and student loan in the same savings account if you want, but calculate each clock. business.govt.nz: voluntary student loan payments through the year spread the load.
Where to park the money
Xero: a separate bank account is optional, but highly recommended. Beany: put tax aside and keep good accounting records. IR325: keep accounts up to date so you can work out the profit and the amount of tax you may have to pay. None of those steps replace the IR3.
Stale percents still circulating
Beany still prints a 6.7% first year discount and a $521.43 KiwiSaver government contribution. Afirmo’s student loan examples still quote $20,020 for the year ending 31 March 2022 and $21,268 for the 2023 tax year, plus a $521.43 KiwiSaver top up at 50 cents in the dollar. Follow live Inland Revenue and business.govt.nz: student loan threshold $24,128 for the 2026 tax year, KiwiSaver government contribution $260.72 if you put in at least $1,042.86. ACC earners levy for 1 April 2026 to 31 March 2027 is 1.75%, not the 1.39% Inland Revenue lists through 31 March 2022. Xero still labels the current brackets as from 1 April 2024.
How to pay KiwiSaver when there is no PAYE job: KiwiSaver for self employed.