What actually changes when you go self-employed?

Title

What actually changes when you go self-employed?

The short version

When you stop being an employee and start working for yourself, a set of things that used to be handled for you become yours to manage — your tax, your ACC, your KiwiSaver, the cover you used to get through work, and how a bank reads your income. None of it is hard once it's laid out; the trouble is it arrives piecemeal, mostly after you've already jumped. "Self-employed" in New Zealand covers two shapes — contracting (selling your own labour, usually on your own) and running a small business (which can also mean premises, stock, and staff). IRD treats both as self-employed, and the personal mechanics below are the same for either. What differs is the operating layer — and where it differs, this entry points you to the right place rather than covering it here.

Where to find the authoritative answer

Inland Revenue — Self-employed. The tax anchor: individual IRD number, tax on net profit filed in an individual return, expense claims, GST over the $60,000 threshold, record-keeping. If you read one source, read this one. ird.govt.nz/roles/self-employed

Inland Revenue — Smart business guide (IR320). IRD's plain-language guide to the tax side of running a business, kept current. Good for the detail behind the points below. ird.govt.nz

business.govt.nz — Becoming a sole trader. A practical setup checklist and a Choose Business Structure tool, for the procedural "what do I actually do" once you've decided. business.govt.nz

govt.nz — Self-employed or running a business. The overview that sits above all of the above, and the cleanest official statement of the contractor-vs-business split. govt.nz

What changes

Seven things move when you go from PAYE to working for yourself. The first six are the same whichever shape you take; the schedular-payments point (2) is where contracting and running a business genuinely diverge.

1. Your tax becomes yours to file and fund. As an employee, PAYE came out before you saw the money. Self-employed, you use your individual IRD number, you're taxed on your net profit (income minus allowable expenses), and you file an individual income tax return (IR3) after year-end. Provisional tax usually doesn't apply in your first year — no prior-year liability to base it on — but kicks in from year two if your residual income tax clears $5,000, and the first instalment is a known cashflow jolt because it can land on top of your end-of-year bill. If your turnover passes $60,000 in any 12-month window, GST registration becomes mandatory. See GST registration and first tax invoice.

2. If you're contracting, tax may be withheld at source — this is where the two shapes split. A contractor working in certain activities, or through a labour-hire arrangement, can have tax deducted from their payments before they're paid (schedular payments / withholding tax), much like PAYE — and still files an IR3 and squares up at year-end. Someone running a small business that invoices customers directly generally has nothing withheld; they manage the whole tax bill themselves through provisional tax. Knowing which one you are tells you whether tax is coming out as you go, or whether setting it aside is entirely on you. See contractor classification and engaging a contractor — the tax side.

3. ACC stops being your employer's problem and becomes a bill you pay. As an employee, your employer paid the work levy and your earner levy came out of your wages automatically. Self-employed, you pay both yourself — the earner levy (1.75% of your liable earnings for the 2026/27 levy year) plus a work levy set by your activity classification — invoiced annually by ACC on your declared income. New self-employed people are often first billed in their second year, which catches people out; budget for it from the start. Source: ACC earners' levy rates (IRD), Accident Compensation Act 2001.

4. KiwiSaver becomes voluntary, and the government's top-up shrank. No one auto-enrols you and no employer contributes, but you can keep contributing as a voluntary member. IRD pays a member tax credit — currently $260.72 a year — if you contribute at least $1,042.86 over the member year. Budget 2025 cut the government's match from 50 cents to 25 cents per dollar (effective 1 July 2025), so the top-up is half what it used to be, though the contribution needed to reach the maximum is unchanged. Still worth doing if you can fund it — just with the smaller match in view. Source: KiwiSaver Act 2006, IRD.

5. The cover you got through work disappears. Health insurance, life insurance, and income protection that came as employee benefits stop. Income protection matters more now — you've lost employer sick leave and there's no one paying you when you can't work — but it's also dearer for the self-employed. Get quotes before you leave, while you still have an employee's risk profile.

6. Banks read your income differently. Going self-employed changes your mortgage serviceability. Most banks want two years of self-employed returns before they'll treat the income as fully bankable; some take one year with strong documentation. This is structural — the Reserve Bank's responsible-lending rules apply across all banks, so it isn't a "find a softer bank" problem. The practical consequence: applying before you go self-employed is far easier than after. If a property move is in the next couple of years, ask your broker exactly what your serviceability looks like the day after you leave PAYE. Source: Credit Contracts and Consumer Finance Act 2003, RBNZ responsible lending.

7. There's transition support, and most people never look. Work and Income runs supports for moving into self-employment — Flexi-Wage for Self-Employment (a wage subsidy paid four-weekly for up to 52 weeks, income and asset tests apply), a Self-Employment Start-Up payment for essential start-up costs (amount assessed on your situation by Work and Income), and a Business Training and Advice Grant (up to $5,000). Eligibility depends on circumstance and not everyone qualifies, but the assumption that "you only get help if you're on a benefit" stops a lot of people from even checking. The application is bounded; it's worth the look. Source: Social Security Act 2018; Work and Income.

Where the two shapes diverge

Everything above is the personal layer — true whether you're contracting solo or opening a shop. If you're running a business rather than just selling your own time, more obligations come with it, and they live in their own entries:

• Choosing a structure (sole trader vs company) — sole trader or company.
• The setup sequence — what to register and in what order — what to start in what order.
• Taking on staff — employer obligations, PAYE, the first hire — hiring your first employee.
• Health and safety duties once you have a workplace, staff, or a site — the health and safety baseline.