Nobody gets into freelancing because they love doing their tax. But the financial side of freelancing is the part that trips people up most often — and almost always because they left it too long, didn’t put enough aside, or didn’t keep records properly.
The good news: none of this is actually complicated. A few simple habits, set up from the start, will keep you on the right side of IRD and make tax time genuinely stress-free.
The golden rule: put 30% aside, every time
Before anything else on this page — this is the single most important financial habit for any freelancer.
Every time a payment lands in your account, immediately transfer at least 30% into your dedicated tax savings account. Not when you feel like it. Not at the end of the month. Immediately, every time, without exception.
That money is not yours. It belongs to IRD — you’re just holding it until it’s due.
Freelancers who get into trouble with IRD almost always tell the same story: they spent the money, tax bill arrived, couldn’t pay it. The stress, penalties, and payment plans that follow are entirely avoidable with this one habit.
30% is a conservative estimate that works for most income levels. If you’re earning more and your tax rate is higher, talk to your accountant about whether you should be putting aside more. Better to have too much saved and get a small refund than to come up short.
Understanding NZ tax for freelancers
Your tax obligations
As a self-employed person or contractor in NZ, you’re responsible for managing your own tax. Unlike employees, nobody is deducting it from your pay — it’s on you to set it aside and pay it when it’s due.
Key things to know:
You must declare all income
Every dollar you earn from freelance work is taxable income. This includes cash payments, bartered services, and income from overseas clients. There are no exceptions and no minimum threshold below which you don’t have to declare.
Provisional tax
Once your tax bill reaches a certain threshold (currently $5,000 in residual income tax), IRD will expect you to pay provisional tax — essentially paying your estimated tax in instalments throughout the year rather than as one lump sum at the end. Your accountant or Hnry will manage this for you, but it’s worth knowing it exists.
The tax year
NZ’s tax year runs from 1 April to 31 March. Your IR3 individual income tax return is generally due by 7 July, though if you have a tax agent (accountant) they usually get an extension. File on time — late filing penalties add up quickly.
Tax rates for contractors
Approximately 25 cents in the dollar if you’re registered with IRD with a correct tax code. If you don’t have a tax code registered, the rate jumps to 45 cents — which is why registering before you start earning is so important.
IRD has good online tools to help you estimate your rate:
ird.govt.nz/calculators
What you can claim as expenses
One of the benefits of being self-employed is that you can deduct legitimate business expenses from your taxable income — meaning you pay tax on your profit, not your total income.
Common deductible expenses for creative and tech freelancers:
- Rent, power, and internet — a portion based on the percentage of your home used for work
- Software subscriptions — Adobe CC, Figma, GitHub, hosting, Slack, project management tools
- Hardware and equipment — computers, monitors, tablets, cameras (often depreciated over time rather than claimed in full)
- Repairs and maintenance on business equipment
- Business vehicle and transport costs related to work
- Phone costs — the business-use portion
- Professional development — courses, books, conference tickets
- Professional services — accountant fees, legal advice
- Insurance premiums for business cover
- ACC levies
- Marketing and advertising costs
- Stationery and office supplies
- 50% of business entertainment costs
What you can’t claim:
- Personal expenses — life insurance, personal loan repayments, private travel
- The cost of buying capital assets outright (these are depreciated instead)
- Any expense that isn’t genuinely related to earning your income
When in doubt, ask your accountant. Claiming incorrectly — in either direction — costs you money. Keep receipts and records for everything you intend to claim.
GST: what you need to know
GST (Goods and Services Tax) is currently 15% in NZ.
When you must register:
Once your annual turnover reaches or is expected to reach $60,000, GST registration is compulsory.
Voluntary registration:
You can register before you hit $60,000 if you want to. Benefits include:
- Claiming back GST on business purchases (software, equipment, etc.)
- Looking more established to corporate clients
The downside is the added admin of filing regular GST returns (usually every two months). Talk to your accountant before deciding — it’s worth it for some freelancers and not for others at an early stage.
Once registered, you add 15% GST to your invoices and pay that amount to IRD, minus any GST you’ve paid on business expenses. Your accountant or Hnry can manage this for you.
Official IRD details: ird.govt.nz/gst
Invoicing
An invoice is a formal request for payment. It’s also a legal document — so accuracy matters.
What every invoice should include
- Your name or business name
- Your IRD number
- Your bank account details
- A unique invoice number (start at 001 or 1001 — whatever system makes sense to you, just be consistent)
- The date the invoice was issued
- The client’s name and contact details
- A clear description of the work completed
- A breakdown of time spent or deliverables provided
- Your hourly rate or project rate
- The total amount owing
- GST amount and GST number — only if you’re GST registered
- The payment due date
Invoice numbering
Your first invoice number is up to you — but start with something that doesn’t reveal you’re brand new. Invoice 001 tells a corporate client this is your first job. Some freelancers start at 100 or 1000 for this reason. Whatever you choose, keep it sequential and consistent.
Payment terms
State your payment terms clearly on every invoice. Common options:
- Net 7 — payment due within 7 days (good for small jobs and fast-turnaround work)
- Net 14 — payment due within 14 days (standard for most freelance work)
- Net 30 — payment due within 30 days (standard in corporate environments)
Include your late payment clause on the invoice itself — not just in your contract. A reminder that overdue invoices accrue interest focuses minds remarkably well.
Invoicing tools
- Wave — free, clean, good for starting out
- Hnry — handles invoicing alongside automatic tax payments
- AND.CO / Bonsai — popular with creative freelancers
- Xero — the full accounting suite, worth it once you’re established
- A well-designed Word or Canva template — completely fine for simple, low-volume invoicing
Following up on unpaid invoices
Chasing invoices is an unavoidable part of freelancing. Most late payments aren’t malicious — invoices get lost, payments get delayed, accounts teams have processes. A calm, professional follow-up a day or two after the due date is normal and expected:
“Hi [Name], just following up on invoice [number] sent on [date] — total $X, due [date]. Please let me know if you have any questions or need me to resend it.”
If payment is significantly overdue, escalate calmly:
- Follow up again, referencing the late payment clause in your contract
- Consider pausing any ongoing work until the invoice is settled
- For persistent non-payment, NZ has a Disputes Tribunal for amounts under $30,000 — it’s accessible, relatively inexpensive, and doesn’t require a lawyer
The best protection against non-payment is a deposit upfront. You can’t chase an invoice that’s already been paid.
Tracking your time
If you’re billing by the hour, accurate time tracking is non-negotiable. It protects you (you know exactly what to invoice), protects the client (they’re only paying for actual time), and helps you estimate future jobs more accurately.
A few principles:
Track in real time, not from memory
Start your timer when you start working. Trying to reconstruct your time at the end of the day or the end of the week is inaccurate and stressful.
Track in blocks
Consider rounding to the nearest 15-minute block rather than tracking to the exact minute. It’s simpler and still accurate enough for most clients.
Include all billable time
Client emails, phone calls, meetings, travel to a client’s office — any time you’re working for or with that client and can’t be working on something else is billable. Don’t forget to include it.
Don’t include personal time
If you take a break, browse social media, or do something personal while your machine is processing — that’s not billable time. Be honest with yourself and with your clients.
If your machine is processing but you’re not working:
Some freelancers charge a reduced rate for render time or processing time where their machine is in use but they can’t be doing other work. Whether you do this is up to you — just be transparent about it if you do.
Good time tracking tools:
- Toggl — most popular, simple and clean, free tier is generous
- Clockify — free forever, good for solo freelancers
- MyHours — straightforward and free
- Harvest — paid, but integrates well with invoicing
- RescueTime — also tracks how you spend your time overall, useful for self-awareness
Keeping records
IRD can audit you going back seven years. Keep records for at least that long.
What to keep:
- All invoices you’ve issued
- All receipts for business expenses
- Bank statements for your business accounts
- Contracts and agreements
- Any correspondence relevant to a job or a payment dispute
- Your tax returns and IRD correspondence
How to organise it:
A simple folder structure works fine:
Freelance Records
├── Clients
│ └── [Client Name]
│ ├── Contracts
│ ├── Invoices
│ └── Project Files
├── Expenses
│ └── [Year]
│ └── Receipts by month
└── Tax
└── [Year]
├── IR3 return
└── IRD correspondenceBack everything up. Cloud storage (Google Drive, Dropbox, iCloud) is fine — just make sure it’s somewhere that won’t disappear if your computer dies.
For expense receipts, a tool like Dext (formerly Receipt Bank) lets you photograph receipts on your phone and stores them digitally. Useful if you end up with a lot of physical receipts.
Budgeting for irregular income
Freelance income is lumpy. Some months you invoice a lot, some months very little. Managing your personal finances around that irregularity is one of the practical skills that separates sustainable freelancers from stressed ones.
A few approaches that help:
Pay yourself a salary
Rather than spending whatever comes in, decide on a monthly amount to transfer to your personal account — a figure that covers your living costs comfortably. In good months, the extra stays in your business account as a buffer. In quiet months, you draw from that buffer. Smooths out the peaks and troughs significantly.
Keep 3–6 months of operating costs in reserve
This is the standard advice for small businesses and it holds for freelancers too. Having a cash buffer means a quiet month is an inconvenience, not a crisis.
Budget for the gaps
Factor in that you won’t be billing every hour you work. Admin, marketing, and finding new clients all take time. A realistic assumption is that you’ll bill 60–75% of your working hours — plan your income targets around that, not around 100%.
Overstate your estimates
When planning your income for the year, be conservative. It’s much better to be pleasantly surprised than to have planned around an optimistic number that doesn’t materialise.
A note on Hnry
If all of this feels like a lot — it’s worth knowing that Hnry (hnry.co.nz) exists specifically to remove this burden for NZ freelancers. For 1% of your income (capped at $2,000/year) they:
- Automatically calculate and pay your income tax on every payment you receive
- Handle GST filing if you’re registered
- Manage your ACC levies
- Process your invoices
- File your IR3 at the end of the year
For many freelancers, especially in the early stages, Hnry pays for itself in time and stress saved. Worth seriously considering if the financial admin side feels like a barrier to getting started.
Financial checklist
- 30% of every payment goes to tax savings immediately
- Registered with IRD with correct tax code
- Separate trading and tax savings accounts in place
- Invoicing tool set up and ready to use
- Time tracking tool in use for hourly work
- Records folder structure set up
- Receipts for all business expenses being kept
- Accountant or Hnry managing tax obligations
- GST situation understood and acted on
- Payment terms and late payment clause on every invoice
Next in the series — and the final post: [Growing Your Freelance Business — keeping clients coming back, building your reputation, scaling up, and what comes next.]