Becoming a sole trader in NZ is one of the simplest ways to start working for yourself - there is no registration process, no company to set up, and no expensive legal fees to get going. You just start trading, then make sure you meet your tax and compliance obligations as you go. This guide walks you through every step, from your IRD number to insurance, so you can get set up properly from day one.
This guide is general information for NZ businesses, not legal, tax or financial advice - check with IRD or a licensed adviser for your situation.
What is a sole trader?
A sole trader is someone who runs a business as an individual. You and the business are the same legal entity - there is no separate company structure between you and your clients. That means every dollar of profit is yours, and every liability is yours too. You can trade under your own name or a business name, and you can hire staff, but legally the business is you.
Sole trader is the most common structure for tradies, contractors, freelancers, and self-employed service providers in NZ. If you are weighing up your options, read our guide on sole trader vs company before you decide. For a broader overview of starting out, see how to start a business in NZ.
Getting and using your IRD number
You do not register to become a sole trader with IRD - you simply start. What you must have is an IRD number, which is your personal tax identifier. If you already have one from PAYE employment, it is the same number you use for your business. If you do not have one, apply at ird.govt.nz.
IRD will not know you are self-employed until you tell them. You do this by filing an IR3 individual income tax return at the end of each tax year (1 April to 31 March). Your business income goes on that return alongside any other income you earn. From the moment you start earning business income, you are responsible for paying tax on it. IRD may also set you up on provisional tax once your income reaches a certain threshold - this means paying tax in instalments during the year rather than in one lump sum after the year ends.
Getting an NZBN (optional but useful)
A New Zealand Business Number (NZBN) is a unique 13-digit identifier for your business. It is free and available to sole traders at nzbn.govt.nz. It is not compulsory, but it makes it easier for clients, suppliers, and government agencies to identify your business - and some larger clients will ask for it before paying an invoice.
Getting an NZBN takes a few minutes online. It also lets you store your business details (trading name, contact info, bank account) in one place so you do not have to repeat them every time you deal with a new party.
Registering for GST
You must register for GST if your turnover exceeds $60,000 in any 12-month period. Once you cross that threshold, you have 21 days to register with IRD. You can also choose to register voluntarily before that point - which can make sense if you work mainly with GST-registered businesses and want to claim GST back on your expenses.
Once registered, you charge GST at 15% on your invoices, collect it from clients, and pay it to IRD minus any GST you have paid on your own business expenses. You file GST returns either monthly, two-monthly, or six-monthly depending on your turnover and preferences.
Read our full guide on GST registration for more detail, or use the GST calculator to quickly check the GST component on any amount.
ACC CoverPlus levies
As a self-employed person, you are covered by ACC (Accident Compensation Corporation) for injuries - but not illness. ACC levies are not optional; they are calculated on your income and collected by IRD when you file your IR3.
The default cover for sole traders is called CoverPlus. Under this scheme, ACC pays you 80% of your taxable income if an injury stops you from working. You can upgrade to CoverPlus Extra, which lets you agree a fixed compensation amount in advance - useful if your income fluctuates or if 80% of your declared earnings would not cover your bills. You can find levy rates and more information at acc.co.nz.
Opening a business bank account
You are not legally required to have a separate business bank account as a sole trader, but it is strongly recommended. Mixing business and personal transactions makes bookkeeping harder and tax time more stressful. A dedicated account makes it far easier to track income, pay suppliers, and show a clear picture of your business finances if IRD ever asks.
Most NZ banks offer business accounts with low or no monthly fees for sole traders. Shop around and compare transaction fees before you sign up.
Keeping records and filing an IR3
You are required to keep business records for at least 7 years. That means invoices, receipts, bank statements, mileage logs - anything that shows your income and expenses.
At the end of each tax year (31 March), you file an IR3 return declaring your business income and allowable expenses. The difference is your taxable profit, and that is what IRD charges income tax on. Common deductible expenses include vehicle costs (business use portion), tools and equipment, phone and internet, and home office costs if you work from home.
Good records throughout the year make filing straightforward. Many sole traders use accounting software like Xero or MYOB, or a simple spreadsheet, to stay on top of it. Check business.govt.nz for record-keeping guidance.
Invoicing clients
As a sole trader, your invoices need to include your name (or trading name), your contact details, a description of the work completed, the amount, and your bank account for payment. If you are GST-registered, you must issue tax invoices that also show your GST number and the GST amount separately.
Use the invoice generator to create professional invoices quickly without any setup. If you work in a trade where your status as a contractor matters - such as construction - read our guide on contractor vs employee to make sure your invoices and working arrangements reflect your genuine contractor status.
Protect yourself: sole traders and insurance
As a sole trader, there is no company structure between you and your liabilities. If something goes wrong - a client is injured on site, property is damaged, or a client claims your work caused them a financial loss - you are personally on the hook. That means your savings, your home, and your personal assets are all at risk.
This makes business insurance one of the most important steps in your setup, not an afterthought. Public liability insurance covers you if your work causes injury or property damage to a third party - it is the single most essential policy for most sole traders in the trades and services sector.
Depending on your work, you may also need:
- Professional indemnity insurance if you provide advice, designs, or consulting services
- Tools and equipment cover to protect your gear if it is stolen or damaged on the job
- Business interruption cover if an unexpected event stops you from working
- Statutory liability insurance to cover costs if you accidentally breach a regulation
Read more about the risks of running a business uninsured, get the full detail on public liability insurance for sole traders, or browse types of business insurance to find the right cover for your situation.
Sole trader setup checklist
Use this list to make sure you have covered the basics before you start trading:
- Confirm you have an IRD number - apply at ird.govt.nz if you do not
- Understand your IR3 obligation and set aside money for tax from day one
- Register for an NZBN at nzbn.govt.nz (free and takes a few minutes)
- Monitor your turnover and register for GST before you hit $60,000
- Review your ACC CoverPlus position - consider CoverPlus Extra if your income varies
- Open a dedicated business bank account
- Set up a simple record-keeping system before your first invoice goes out
- Create a professional invoice template - try the invoice generator
- Get public liability insurance in place before you start working with clients
- Review your full insurance needs and adjust cover as your business grows
Frequently asked questions
Do I need to register anywhere to become a sole trader in NZ?
No. There is no formal registration process to become a sole trader in NZ. You simply start trading and use your existing personal IRD number for your business. You do need to declare your business income each year via an IR3 return, and you must register for GST with IRD if your turnover exceeds $60,000 in any 12-month period.
Can I use my personal IRD number for my sole trader business?
Yes - your personal IRD number is your business IRD number as a sole trader. Unlike a company, which gets its own IRD number at incorporation, a sole trader uses their individual number for everything. You will use it on your invoices, on your IR3 return, and on any GST registration.
What is the difference between a sole trader and a company in NZ?
The main difference is legal liability. A company is a separate legal entity, so your personal assets are generally protected if the business runs into debt or legal trouble. As a sole trader, you and the business are the same legal person, so you are personally liable for all debts and claims against the business. See our sole trader vs company guide for a full breakdown of the pros and cons of each structure.
When do I have to register for GST as a sole trader?
You must register for GST when your total turnover exceeds $60,000 in any 12-month period. You have 21 days from crossing that threshold to register with IRD. You can also register voluntarily before you reach that level, which is worth considering if your clients are GST-registered and you want to claim back GST on your business expenses.
Does ACC cover me if I cannot work as a sole trader?
ACC covers you for injuries - both work-related and everyday accidents - but it does not cover illness or non-injury health conditions. As a self-employed person you are on the CoverPlus scheme by default, which pays 80% of your taxable income if an injury stops you from working. Your levies are based on your income and collected by IRD when you file your IR3 each year.