Self-Employment & Provisional Tax in NZ

If you’re self-employed in New Zealand — whether as a sole trader, contractor, or freelancer — you’ll need to understand provisional tax. It’s how IRD collects income tax from people who don’t have an employer deducting PAYE.

What is Provisional Tax?

Provisional tax is essentially paying your income tax in advance throughout the year, rather than in one lump sum after filing your return. You’re required to pay provisional tax if your residual income tax (RIT) was more than $5,000 in the previous year (RIT of exactly $5,000 or less keeps you out of the regime).

Residual income tax is the tax remaining after PAYE and other withholding credits are deducted from your total tax liability.

The Three Instalment Dates

For a standard balance date of 31 March, provisional tax is due in three instalments:

Standard method: Your provisional tax is calculated as your prior year’s RIT plus 5% (105% uplift) — but only once that prior year’s return has been filed by your first instalment date. If it hasn’t been filed yet, instalments due in the meantime are based on 110% of your RIT from two years ago instead, reverting to the 105% figure once the return is filed. IRD sends you a statement with the amounts.

Estimation method: You can estimate your own income and pay provisional tax based on that estimate. This is useful if your income fluctuates significantly year to year.

Accounting Income Method (AIM): If you use compatible accounting software, you can pay provisional tax based on actual income as you earn it, similar to how PAYE works for employees. This is the most accurate method but requires more administration.

Income Tax for the Self-Employed

Self-employed income is taxed at the same progressive rates as employment income:

Your taxable income is your gross business income minus allowable business expenses. Common deductions include home office costs, vehicle expenses, professional subscriptions, accounting fees, and equipment depreciation.

ACC for the Self-Employed

Self-employed workers pay two ACC levies:

1. Earner’s levy (1.67%) — the same levy employees pay, covering non-work injuries
2. Work levy — the rate varies by industry and risk classification, ranging from around 0.08% to over 3%

Both levies are calculated on your liable income up to the ACC maximum ($152,790 for 2025-26). ACC — not IRD — invoices you directly for these levies, using the income figure IRD passes on after your tax return is filed; this is a separate billing process from your provisional or terminal income tax and isn’t part of your RIT.

KiwiSaver for the Self-Employed

KiwiSaver membership is voluntary for self-employed people. If you choose to contribute:

• You can contribute any amount at any time
• There is no employer contribution (since you’re your own employer, you’re not required to contribute as an employer)
• You still qualify for the government contribution of up to $260.72 per year from 1 July 2025 (halved from $521.43 under Budget 2025) if you contribute at least $1,042.86 and your prior-year income is $180,000 or less

GST Registration

If your annual turnover exceeds $60,000, you must register for GST. You can voluntarily register below this threshold. GST-registered businesses charge 15% GST on sales and can claim back GST on business expenses.

Use-of-Money Interest

If you underpay your provisional tax, IRD charges use-of-money interest — currently 8.97% on underpayments, a rate in effect from 16 January 2026 (it’s updated periodically by Order in Council, not fixed to a tax year). If you overpay, IRD pays you interest at a lower rate (2.25% from the same date). If your RIT for the year is under $60,000 and you pay it in full by terminal tax date, none of this applies — IRD doesn’t charge UOMI on the underpayment at all, regardless of how the in-year instalments went.

Getting Started

Use our Self-Employment Tax Calculator to estimate your total tax bill including income tax, ACC levies, and provisional tax instalments.