What tax do NZ sole traders pay in their first year of self-employment?

In your first year of self-employment in New Zealand, you typically do NOT pay provisional tax. Provisional tax only kicks in when your residual income tax (RIT) from the previous year exceeds NZ$5,000. **Your first-year tax timeline:** 1. You earn income throughout your first year (1 April to 31 March) 2. You file your IR3 by 7 July following year-end 3. IR assesses your tax and issues a bill 4. You pay the tax bill (typically by 7 February the following year) So in your first year, you have 15-16 months before you need to pay your first tax bill. This does NOT mean you should spend the money — you must set aside tax throughout the year. **Starting a set-aside habit:** Set aside 25-35% of every payment you receive into a separate savings account. When your tax bill arrives, you'll have the funds ready. Many first-year sole traders are caught off guard by the size of their first-year tax bill. **From year two onwards:** If your first-year RIT exceeds NZ$5,000, you'll begin paying provisional tax instalments throughout year two.

• No provisional tax in your first year of self-employment
• First tax bill due approximately 16 months after you start
• Set aside 25-35% of income throughout the year
• Provisional tax begins in year two (if RIT > NZ$5,000)
• Many new sole traders are surprised by the size of their first tax bill