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As a sole trader, particularly at the early stages of your business where you may be dealing with the different financial, legal and other hurdles by yourself, it can be easy to feel overwhelmed. There are lots of different moving parts to a business, even aside from the core product or service your business is offering. However, there is a lot of support available. There are a range of legal entitlements for sole traders. There are also some large grants and other funding options from the government for small businesses. This article looks at each of these in turn.

Expenses, Early Payment Discounts and Tax Credits

One important thing to remember is to keep track of your expenses as a sole trader for the purposes of claiming them back at a later date. Business expenses are the costs of running your business. If you work from home, you can claim back many parts of many of your household expenses, such as mortgage interest, your mobile plan and your electricity bills. It is a good idea to discuss this with an accountant when the end of the tax year is approaching.

You are also entitled to an early payment discount if you pay your income tax early in your first year as a sole trader. This discount is 6.7% on your tax bill. 

There are also tax credits available to sole traders as individuals. A popular credit is the Independent Earner Tax Credit, an entitlement for workers who earn between $24,000 to $48,000 per year (after expenses and any losses).

If your income is between:

  • $24,000 and $44,000, then you will get $10 per week (amounting to $520 a year); or
  • $44,001 and $48,000, then your entitlement will reduce by 13 cents for every dollar you earn over $44,000.

You can claim the Independent Earner Tax Credit when you file your IR3 or individual tax return.

Paid Parental Leave for a Sole Trader

In some circumstances, sole traders can access paid parental leave when:

  • having a baby; or
  • taking permanent responsibility for the care of a child under six.

If you have been self-employed for at least an average of 10 hours a week for at least any 26 of the 52 weeks up to your due date, or when the child comes into your care, you should be eligible for paid parental leave.

If you are a self-employed sole trader, parental leave payments will amount to your average weekly earnings up to $527.72 a week before tax. The minimum payment is $152.50 a week before tax. If you earn less than this or make a loss, this payment is what you will get. Paid parental leave is for one continuous period of up to 26 weeks

You can apply for paid parental leave through the IRD.

Sole Trader Grants and Funding

There are a range of grants and funding opportunities available for sole traders to apply for, particularly through New Zealand’s government entities like: 

  • Callaghan Innovation; and
  • New Zealand Trade and Enterprise (NZTE).

One example of a grant is an NZTE Capability Development Voucher. This aims to help business owners seeking to grow their business. Fortunately, this includes sole traders which are registered for GST. You can apply for this voucher to help with the cost of developing and training in areas like: planning, raising capital, exports, finance, and marketing. If you want more information or would like to apply, you can do so through this website.

There are also research and development grants available through Callaghan Innovation to help support research and development in small businesses.

Key Takeaways

Sole traders in New Zealand have a range of legal entitlements. These include ones related to tax and financials, such as claiming back business expenses, earning an early payment discount, and the Independent Earner Tax Credit. Solo traders are also entitled to paid parental leave. There are also grants and other funding opportunities available as well. It is a good idea to get support from an accountant or commercial lawyer if you would like to fully understand all of the entitlements available to you as a sole trader, and there is additional support provided online by the government for sole traders. If you want to know more about your legal entitlements as a sole trader, contact LegalVision’s commercial lawyers on 0800 005 570 or complete the form on this page.

Frequently Asked Questions

What is a sole trader?

Sole traders have a business or professionally contract on their own, without registering as a limited or unlimited company. They are entitled to any profits and have liability for any debts from the business.

Do sole traders get paid parental leave?

Yes, sole traders who are self-employed and having a baby or taking permanent responsibility for a child are entitled to paid parental leave. To qualify, you must have been self-employed for at least an average of 10 hours a week for at least any 26 of the 52 weeks up to your due date, or when the child comes into your care.

What grants are available to sole traders?

A range of grants are available to sole traders, particularly through government entities like Callaghan Innovation and New Zealand Trade and Enterprise. It is well worth looking at their websites to see what grants might be available and relevant for your business and industry.

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