What Is a Sole Trader in NZ? Meaning, Pros and Cons

Short answer: A sole trader is one person who owns and runs a business without setting up a company. Legally you and the business are the same person: you keep all the profit, pay income tax on it at personal rates of 10.5% to 39% through an IR3 return under your own IRD number, and you are personally responsible for every business debt. In New Zealand there is nothing to register to start: you tell Inland Revenue you are in business, an NZBN is optional, and you can employ staff once you register as an employer.

This guide draws on business.govt.nz’s advice on choosing the right business structure and Inland Revenue’s rates for the 2027 tax year (1 April 2026 – 31 March 2027). It explains what a sole trader is; for the set-up checklist, see how to become self-employed in NZ, and for whether a company would suit you better, sole trader vs company.

What is a sole trader?

A sole trader business is owned and run by one person, and business.govt.nz notes that many small businesses and contractors start out this way. The plumber with a van, the freelance designer and the bookkeeper with a handful of clients are typically sole traders.

Three things define the structure:

• No separate legal entity. The business is you. Contracts, debts and assets are in your name, even if you trade as “Kauri Coast Plumbing”.
• You own all the profit. Money you take out is drawings, not wages, and you are taxed on the profit, not on what you draw.
• “Sole” means ownership, not headcount. A sole trader can employ staff and use subcontractors.

“Self-employed” and “sole trader” are often used interchangeably. Strictly, self-employed describes working for yourself, and sole trader is the legal structure most self-employed people use. The other common structures are a partnership (two or more people in business together) and a company. If you are unsure whether you are in business at all or working as someone’s employee, contractor vs employee sets out the tests.

How do you become a sole trader in NZ?

You become one by starting to trade. Business.govt.nz’s tax basics for sole traders says you do not need to register yourself or your business with a government agency; you only need to tell Inland Revenue that you have started working for yourself.

Step	Required?
Tell Inland Revenue you are in business	Yes
Use your personal IRD number for the business	Yes: there is no second number
Register a business name	No: there is no sole trader name register
Get an NZBN	Optional and free
Register for GST	Only at $60,000 of turnover in 12 months, or by choice
Register as an employer	Only if you hire staff

The GST test comes from Inland Revenue’s registering for GST page: you must register if your turnover was at least $60,000 in the last 12 months or you expect it to be in the next 12, and you then have 21 days. The full week-one list is in how to become self-employed in NZ.

How is a sole trader taxed in NZ?

You pay income tax on your net profit, at personal rates, by filing an IR3 return after the tax year ends on 31 March. Business.govt.nz names three taxes and levies to plan for: income tax, ACC levies and GST.

These are the income tax rates for the 2027 tax year, from Inland Revenue’s tax rates for individuals:

Taxable income	Rate
$0 – $15,600	10.5%
$15,601 – $53,500	17.5%
$53,501 – $78,100	30%
$78,101 – $180,000	33%
Over $180,000	39%

Worked example. A sole trader electrician invoices $95,000 (excluding GST) in the year and has $35,000 of deductible expenses, leaving $60,000 of profit. Income tax is $1,638.00 on the first $15,600, $6,632.50 on the next $37,900 and $1,950.00 on the last $6,500: $10,220.50 in total. On top comes ACC. The earners’ levy for 2026–27 is $1.75 per $100 of liable earnings, under Inland Revenue’s ACC earners’ levy rates, which is about $1,050 here, plus a work levy that depends on the trade; see ACC levies for the self-employed. With turnover over $60,000, this electrician must also be registered for GST.

Once your end-of-year tax bill is over $5,000, you usually pay provisional tax in instalments the following year. The return itself is covered in the IR3 explained.

Are you personally liable as a sole trader?

Yes. Business.govt.nz says a sole trader is personally responsible for all debts, and for all income and losses. If the business cannot pay a supplier, a loan or a damages claim, the creditor can pursue your personal assets, such as your house, car and savings.

You can reduce the risk without changing structure:

• Clear contracts. Write down scope, price and payment terms before you start, so disputes are smaller and rarer.
• Liability insurance. Business.govt.nz’s guide to types of insurance says all businesses and self-employed people should have liability cover. Asset insurance covers theft of and damage to tools, computers and stock.
• ACC. As a sole trader you automatically get ACC personal injury cover (CoverPlus), paid for through your levies. It covers your injuries, not claims against you.

If the risks grow, with large contracts, staff or supplier credit, a limited company can cap your exposure, although lenders and landlords may still ask you for a personal guarantee.

What are the advantages and disadvantages of being a sole trader?

The sole trader structure is the simplest and cheapest way to run a business, and the price of that simplicity is personal liability.

Advantages	Disadvantages
Nothing to register and no fees to start	You are personally liable for every business debt
Full control: business.govt.nz calls it the structure with the most flexibility	Harder to raise investment, as business.govt.nz notes
You keep all the profit	All profit is taxed at your personal rate, up to 39%, whether or not you take it out
One tax return: your own IR3	No holiday pay, sick leave or employer KiwiSaver contribution
Records and admin stay simple	If you cannot work, the income usually stops
Easy to change later: you can set up a company when it makes sense	The business is hard to sell separately from you

The tax row is the one that most often prompts a change. A company pays 28% on profit it keeps, so it tends to make sense once your profit is well into the 33% or 39% brackets and you can leave some of it in the business. Sole trader vs company works through the numbers.

Can a sole trader have employees?

Yes. Business.govt.nz says a sole trader can hire staff, but you must first be registered as an employer with Inland Revenue and meet an employer’s obligations.

Those obligations include:

• deducting PAYE and other deductions from wages and reporting them to Inland Revenue
• KiwiSaver deductions and employer contributions for eligible staff
• a written employment agreement for each employee; business.govt.nz covers employment agreements and job offers
• minimum wage, holidays and leave entitlements

One special case: if you want to pay your spouse or partner wages as a sole trader, business.govt.nz says you need Inland Revenue’s approval first.

Using subcontractors rather than employees avoids employer registration, but a “contractor” who works set hours under your direction may legally be an employee.

Do you need a business name, NZBN or insurance as a sole trader?

None of them is compulsory, but each is worth a decision.

Business name. You can trade under your own name or a trading name, and there is no sole trader name register. Business.govt.nz’s guide to choosing a business name points to the ONECheck tool, which searches business names, trade marks, website domains and social media usernames in one go. You cannot trade under a name someone else has registered as a trade mark in your industry, and a registered trade mark is the strongest way to protect your own.

NZBN. A New Zealand Business Number is free and optional. The Companies Office’s NZBN page says sole traders, partnerships and trusts can have one as well as companies, and you can choose to add details such as your trading name and GST number to the public NZBN register. Larger clients sometimes ask for it on their supplier forms.

Insurance. Beyond ACC, liability cover is the one business.govt.nz says every self-employed person should have; contents, tools and vehicle cover depend on what you own. Some clients and main contractors ask for proof of public liability insurance before you start.

Running the records as a sole trader, and where does Keel fit?

Your IR3, your GST return and any customer dispute all come back to the same records: what you quoted, invoiced, were paid and spent. Inland Revenue’s record keeping rules require them for at least 7 years.

Keel: Invoice Maker & Receipts, an iPhone app by Ilura Technology OÜ, keeps those records together. You create estimates that become invoices in one tap, send PDF invoices, capture receipts and expenses, log business mileage, and keep everything under its job and customer. “Who owes you” shows unpaid invoices and prepares reminder drafts that you review and send yourself; nothing is sent automatically. Records stay on your iPhone, with no account, no bank connection and no cloud sync, and the App Store privacy label reads “Data Not Collected”.

Keel does not register you with Inland Revenue, calculate your tax, file returns or connect to Inland Revenue. It is free with no invoice limit (free invoices carry a small “Made with Keel” footer), and Keel Lifetime is a one-time purchase of $249.99 USD (the App Store shows your local price) that adds custom branding, signature, premium templates and accountant-ready exports and reports. Keel on the App Store. More guides are on the New Zealand hub.

Frequently asked questions

What is a sole trader in simple terms? A sole trader is a person who runs a business on their own account, without forming a company. You and the business are legally the same, so you keep the profit, pay tax on it at personal rates and carry the business’s debts personally. Most self-employed people in New Zealand start this way.

Do I need to register as a sole trader in NZ? No. Business.govt.nz says you do not need to register yourself or your business with a government agency; you just tell Inland Revenue you have started working for yourself. GST registration is needed only once turnover reaches $60,000 in 12 months, and employer registration only if you hire staff.

Can a sole trader have employees in NZ? Yes. You must first register as an employer with Inland Revenue, then deduct PAYE, handle KiwiSaver, give each employee a written employment agreement and meet minimum wage and leave rules. Paying wages to your own spouse or partner needs Inland Revenue’s approval first.

What are the main disadvantages of being a sole trader? Unlimited personal liability is the biggest: business debts can reach your personal assets. All profit is taxed at your personal rate, up to 39%, even if you leave it in the business, and it is harder to raise investment or sell the business. If you cannot work, the income usually stops.

Does a sole trader need an NZBN? No. An NZBN is free and optional for sole traders. It gives you an identifier that larger clients and government agencies recognise, and you can choose to show details such as your trading name and GST number on the public NZBN register. It does not replace your IRD number for tax.

How much tax does a sole trader pay in NZ? Income tax on net profit at personal rates: 10.5% up to $15,600, 17.5% to $53,500, 30% to $78,100, 33% to $180,000 and 39% above that. A sole trader with $60,000 of profit pays $10,220.50 of income tax, plus ACC levies, and GST is separate if you are registered.

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This article is general information, not tax or legal advice. Consult a qualified New Zealand accountant or tax professional.