A common misconception that people have as they head into self-employment is that they need to register a Business in order to trade independently. This isn't the case, and registering unnecessarily can create extra work and cost for you.
If you're a sole contractor or freelancer, there really isn't any need to increase your hassle and costs by registering as a business.
Here are some of the impacts of registering as a business:
- You will have to file both Individual (IR3) and Business (IR4) tax returns
- You will need to update your company details every year, and pay an annual fee to the NZ Companies Office
- You'll be liable for Business ACC payments when trading as a business
- If you are a Director of that business, you will still have some liability for any debts of that business
If you are a sole trader, you can still choose a logo, have a trading name, and claim tax relief on your Business Expenses. As a sole trader, you get the majority of the benefits with less of the admin overhead and cost!
If you have a registered business, you'll only be able to use Hnry for your Director's Drawings. You'll have to deactivate your business in order to use Hnry for everything else.
If you need more help deciding what is the best structure for you, here is a very quick 3-question form that will help https://www.business.govt.nz/choose-business-structure/
Switching from a Registered Business
After you've ceased operating as a business, you must file a final tax return that includes your business accounts up to the date your business ceased to operate. Until you've filed your final tax return, you haven't completed your business tax obligations.
You'll also have to remove your company from the register and declare to IRD that your company has been deactivated, by filling out an IR433 form.
N.B. You can use Hnry whether you are a sole trader, or whether you take Drawings from a Registered Business. There may be certain circumstances where registering as a business is the most appropriate option for you. Check out this quick quiz from MBIE to get a better sense of what might work best for you.