As a freelancer, who pays my tax?
Written by
Unless you’re the Queen or dead, you do. But there’s a way to simplify your business affairs as a freelancer: set yourself up as a sole trader. If you want to build an empire, start up a company. But if it’s just going to be little ol’ you, be a sole trader.
Unless you’re the Queen or dead, you do. But there’s a way to simplify your business affairs as a freelancer: set yourself up as a sole trader. If you want to build an empire, start up a company. But if it’s just going to be little ol’ you, be a sole trader.
How does being a sole trader work in practice? If you’re represented by The Pond, as a sole trader you simply invoice us for the hours you work. Then we deduct 25% withholding tax and pay it over to the IRD on your behalf. Simple.
If you’re not with The Pond, your clients will have to do that job instead. In that case you really should make a point of writing ‘Please deduct withholding tax’ somewhere on your invoice so their accounts person knows what the story is.
Think of withholding tax as a contribution towards the total tax you’ll have to pay – because if you earn more than $70,000 a year, for instance, you’ll need to pay more tax at the end of the year when you file your return.
Speaking of income – did you know you have to register for GST if you intend to make more than $60,000 a year? If you don’t register for GST and you exceed the $60,000 threshold, the IRD can backdate the GST and clobber you with a big tax bill plus a late penalty fee. Then you’ll have to present all your clients with invoices for the missing GST. Not a good look.
So don’t be a plonker: register for GST. It also means you can claim back the GST on your expenses that are associated with doing business, i.e/ petrol, internet, mobile phone, home office, coffees with clients, etc. Mind you, you’ll have to file a GST return every two or six months.
If you still want to set up as a limited liability company, you really should enlist the services of an accountant because otherwise you’ll have to do complicated things like double-entry bookkeeping yourself. Our advice? Be a sole trader, it was set up for individuals such as freelancers, contractors and casual workers offering businesses or clients their services.