Thinking of becoming a contractor? Part 2
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When you begin contracting, you are effectively setting up your own business. You should be aware of tax laws and your obligations regarding Goods and Services Tax (GST) in New Zealand. You have the choice of operating as a sole trader or starting a limited company.

GST

If, during the current financial year you expect to gross over $60,000 from your contracting work, you will be required to register for GST. You have the choice of payment dates; we recommend that you either pay monthly or every two months. This will generally ensure you won’t be charged for late filing fees or pay interest on overdue payments.

Sole Trader

As a sole trader, you will be responsible for keeping records of your payments and GST. Whether contracting through a recruitment agency or directly with an employer, you should ensure your hours of work are recorded, signed-off and invoiced for including the GST amount. In addition, you should keep receipts for all expenses incurred in pursuance of your work including cost of equipment, courses, software, etc – these can potentially be deducted when calculating your taxable profit at the end of the financial year.

At MTR, we streamline things a little for our contractors (be they sole traders or through limited companies) by providing them with a “Buyer Created Invoice” at the end of each month which lists all payments made to them by MTR (for timesheets submitted), including the amount of GST paid if registered. However, you are ultimately responsible for paying tax at the appropriate rates, not the recruiter or employer. It is advisable to open a separate bank account which should be used to process your tax payments and receipts.

Limited Company

Forming a limited company can offer you some distinct advantages, namely: 1) less personal liability for commercial risks, and 2) you can employ others in your company. However, a limited company will need to be audited by an accountant every tax year which will increase your operating costs as a contractor. For more detailed information on other subtle advantages, we’ve prepared a “Tax Matters” resource for our contractors – contact your MTR consultant for a copy of this.

To help distinguish whether a sole proprietorship or limited companies is right for you, visit the Inland Revenue website.

Tips on starting in a contract

A quick word on stress: When you start a new contract, usually, the pressure is not on to the same degree as it is towards the end of the project. Consequently, it is best to get up to speed as quickly as possible to help to alleviate that end-of-project stress. Get to know your colleagues and the key people in the business quickly; they will prove to be valuable resources for you at key times.

In general, a great attitude goes a long way and can be instrumental in contract extensions and subsequent work. Be professional, calm and maintain your sense of humour. It is important to be seen as part of the team right from the first day. Moreover, good communication can overcome a lot of tricky situations. If real problems arise, deal with them quickly by talking to your manager or employer. 99% of issues in the workplace can be traced back to poor communication. Remember there are two aspects to communication – talking and listening. If you do make a mistake, own up to it quickly. Your colleagues would much rather know of potential problems as quickly as possible.

Part three in this series will cover best practices for contractors. Are you currently working as a sole trader or through a limited company? What are your thoughts about doing your own accounting?

Disclaimer: This blog covers some general accounting information. We do not offer any guarantees, warranties or assurances as to the accuracy of this information and recommend you talk to IRD or your accountant about these matters.