What is a sole trader?

A sole trader is the simplest and most common business structure in New Zealand. It means you run a business in your own name, as an individual — there's no separate legal company involved.

Sole traders include freelancers, contractors, tradespeople, consultants, creatives, and anyone who works for themselves. If you're self-employed and haven't set up a company or partnership, you're almost certainly a sole trader.

The key things to know

You and your business are legally the same person

As a sole trader, there is no legal separation between you and your business. Your business's income is your income, your business's debts are your debts, and you file one tax return — your personal IR3 — that covers everything.

You use your personal IRD number

You don't need a separate business IRD number. All your income is reported and taxed under your individual IRD number.

You pay income tax on your net profit

Tax is calculated on your business income minus your allowable expenses (your net profit). That profit is added to any other income you earn (salary, rent, interest) and taxed at the standard NZ personal income tax rates.

You are personally responsible for all debts

If your business owes money — to a supplier, the IRD, ACC, or anyone else — you are personally responsible for that debt. There's no liability protection, unlike a limited company where shareholders are generally only liable up to the value of their shares.

Advantages of being a sole trader

Simple to start — no registration required, just start trading with an IRD number
Low cost — minimal setup or compliance costs
Full control — you make all the decisions
You keep all the profits — no sharing with other shareholders
Simple tax — one IR3 return covers everything
Flexible — easy to change, pause, or close your business

Responsibilities as a sole trader

Running your own business means managing your own obligations. As a sole trader, you are responsible for:

Filing your IR3 return at the end of each tax year (by 7 July, or later if using a tax agent like Lodg)
Paying income tax on your net profit at the personal tax rates
Setting aside money for tax throughout the year — unlike an employee, no one deducts tax for you
Registering for GST if your turnover reaches $60,000 in any 12-month period
Paying provisional tax if your tax bill exceeds $5,000
Paying ACC levies — you're automatically covered for injury from day one
Keeping accurate records for at least 7 years

Entitlements sole traders have

Being self-employed doesn't mean going without support. As a sole trader in New Zealand, you may be entitled to:

ACC cover — you're automatically covered for personal and work-related injuries from day one of self-employment (ACC CoverPlus)
Paid parental leave — if you've been self-employed for an average of 10 hours per week for at least 26 of the 52 weeks before your due date, you may qualify for paid parental leave
Working for Families — if you have dependent children, you may be eligible regardless of whether you're employed or self-employed

Is sole trader the right structure for you?

Sole trader is a great starting point for most people working for themselves. As your business grows, you may consider incorporating as a company — particularly if:

Your income grows to a level where the flat 28% company tax rate is lower than your personal tax rate
You want to bring in business partners or investors
You want to separate personal and business liability more formally

There's no pressure to make this switch early. Many New Zealand business owners operate as sole traders throughout their entire working lives.

See our article: What's the difference between a sole trader and a company? for a detailed comparison.

What Lodg does for sole traders

Lodg is built specifically for New Zealand sole traders. We handle the parts of running a business that most people find stressful:

Connecting your bank account and automatically categorising income and expenses
Calculating your tax and provisional tax obligations throughout the year
Filing your GST returns with IRD
Filing your IR3 income tax return — as a registered tax agent, which extends your filing deadline
Storing your records securely so they're accessible whenever you need them

If you're just getting started, see: Getting Started with Lodg for your first steps.

Source: ird.govt.nz — Self-employed | business.govt.nz — Sole trader | business.govt.nz — Becoming a sole trader | acc.co.nz — Cover for self-employed