Contracts should state the required cover. Some Recruiters offer it (but will clip the ticket on your rate).
You can choose to operate as a sole trader or Company. A Company has more administration and probably not a lot of benefits if it is just you.
Your first year you will need to put aside money to pay your income tax at the end of the year. You will not get charged provisional tax the first year you are in operation, but at the end of financial you will be hit with the entirety of your income tax bill. Depending on your income this can be 20k-40k and if you do not save up for it during the year you will be screwed.
After your first year you will estimate your income and pay estimated tax as provisional tax 3 times a year. Again you must ensure you save money out of your income to pay for this.
ACC is an annual cost you will get invoiced for at the end of the year. You need to put aside money for this too. This again will vary on your income.
As has been stated you cannot expect to work for the full 52 weeks each year. You will get sick or have a meltdown. I suggest planning for at least 4 weeks of downtime. That is now 4 weeks with ZERO INCOME. You must budget to have funds to cover you. By the same token taking a holiday is now the cost of the holiday PLUS the income lost while you are away. Be prepared for this.
Additionally a lot of workplaces have enforced leave for contractors over Christmas, which hit you in January/February (when your invoices are paid). Not working for 2 weeks can make a big difference if you are living paycheck to paycheck.
When you first change over you could potentially be waiting a long time between pays. You send your invoice at the end of the month and you get paid 2-6 weeks after that. Have some money to cover you.
GST can be paid 3 monthly or 6 monthly. Xero makes this super easy to do yourself, or get your accountant. If you aren't doing anything complicated it is very easy to do - but remember to take your GST off your income and put it somewhere until it needs to be paid. It is never ever yours to spend.
I strongly recommend engaging an accountant to help with your planning and budgeting. Getting that first year right is critical. You need to develop the discipline to save. It is very tempting when you have 20k sitting in a bank account that you CANNOT touch.
You can do clever things with FBT and using office space for your "business" to claim GST etc - I don't bother as the benefits do not outweigh the additional admin.
How you are treated as a contractor comes down to the organisation. My last 2 contracts have been 4 years and 5 years. I was treated as an employee in most cases, but was not invited to work Christmas functions. To be expected given the size of the organisation (large). My wife contracts as well and is treated exactly the same as an employee (goes to all functions and wins employee of the month type things).
I find the freedom and distance from political bollocks refreshing. There is zero guilt in looking for other opportunities or when you leave.
shall0w: Piggybacking on the OP, can anyone recommend an insurance provider for IT contractors / consultants for the indemnity / liability insurance? Not intending to claim (who is?) so low premiums are preferred!
Last time I used Kirsty from i2i brokers, office phone 04 479-5378. All contracting firms offer insurance, some include it, some charge extra for it. If you know you'll be there a year it can be cheaper to get your own, short term or uncertain go with their hourly option.
wasabi2k: Your first year you will need to put aside money to pay your income tax at the end of the year. You will not get charged provisional tax the first year you are in operation, but at the end of financial you will be hit with the entirety of your income tax bill. Depending on your income this can be 20k-40k and if you do not save up for it during the year you will be screwed.
After your first year you will estimate your income and pay estimated tax as provisional tax 3 times a year. Again you must ensure you save money out of your income to pay for this.
ACC is an annual cost you will get invoiced for at the end of the year. You need to put aside money for this too. This again will vary on your income.
This!!
Many small businesses (of which a contrator could be classed as) fold in year 2 or 3 due to not putting money aside for their future tax and ACC obligations. I'd recommend around 30% of total invoiced put aside to start with, you may be able to trim the percentage down as you go once you have had a couple of tax years under your belt.
Highly recommend having an Accountant, they should be able to suggest things to lower your tax bill that at least pay for their fees. You shoudl be able to pick and choose what things they do for you. I do my own GST, FBT, ACC, company registration and get the accountant to do my annual accounts.
Also for insurances check out becoming a member of the Institute of IT Professionals NZ (IITP) and taking advantage of their membership benefit for Indemnity and PL insurance. Last time I ran the numbers it was cheaper for IITP membership and insurance (actually via i2i brokers who offer the discount) than just the insurance via State / QBE. More details here http://iitp.nz/membership/insurance
Provisional tax can be only twice a year. You can pay ACC in advance with CoverPlus Extra.
An accountant can help by claiming back expenses, including home office IF you have one that meets requirements. They're not magic, they'll probably cost more than they save at least initially.
A lot of people have this misconception that you just "claim it on the business" and that magically means you don't pay for it.
My company pays for some stuff that I can class as work related. This means I can claim the GST and that the income I use to pay for it doesn't go to me as wages and get taxed with income tax.
wasabi2k: A lot of people have this misconception that you just "claim it on the business" and that magically means you don't pay for it.
My company pays for some stuff that I can class as work related. This means I can claim the GST and that the income I use to pay for it doesn't go to me as wages and get taxed with income tax.
I still have to pay for it.
The ability to claim the GST and to offset the cost against income tax certainly helps alleviate the cost of products & services used in the business. You're bang on that a lot of people think you don't have to pay for it at all!
Many don't even realise there's different deduction rates applied for business expenses e.g. Entertainment. It's a steep (and potentially expensive) learning curve when you first start out.
Fun story... I was contracting in London some years ago. Lots of snow caused traffic and commuting chaos. When I got into the office I arrived to find that only the other contractors had turned up to work!
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