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Tradie Accounting Made Easy

Accounting for Tradesmen and Contractors in New Zealand: A Complete Guide

Whether you’re a plumber, builder, electrician, landscaper, or any other skilled tradesperson or contractor in New Zealand, managing your finances is just as crucial as doing the job right. While many tradespeople excel at their craft, accounting and tax responsibilities often come second—until tax time hits. That’s when confusion, missed deductions, and IRD penalties can arise.

This article serves as a practical and easy-to-understand guide to accounting for tradesmen and contractors in New Zealand. We’ll cover the key accounting principles you need to know, allowable business expenses you can claim, and the essential tax rules you must follow to stay compliant and profitable.

1. Why Accounting Matters for Tradesmen and Contractors

Running a successful trade business means more than just keeping busy with jobs. Proper accounting helps you:

  • Track income and cash flow

  • Understand your profit margins

  • Claim legitimate business expenses

  • Meet your tax obligations

  • Avoid penalties from IRD

  • Make informed business decisions

  • Plan for the future (e.g. hiring, investing in new tools, retirement)

Even if you’re a sole trader or just starting out, having solid accounting processes in place will save you time, stress, and money.

2. Business Structures for Tradespeople in NZ

How you structure your business affects your tax obligations and financial responsibilities. The most common structures for tradesmen are:

Sole Trader

  • Simple and low-cost to set up

  • You are personally liable for all business debts

  • Income is taxed at personal income tax rates

Partnership

  • Involves two or more people running the business

  • Income and responsibilities are shared

  • Still taxed at personal rates

Limited Liability Company

  • More complex, but offers legal separation between personal and business assets

  • Profits are taxed at the company rate (28%)

  • Allows for salary payments, shareholder dividends, and better tax planning

Most self-employed tradesmen begin as sole traders but may switch to a company structure as they grow.

3. Essential Accounting Tasks

Here are the key accounting tasks every contractor or tradesperson should regularly perform:

1. Keep Accurate Records

You must keep records for seven years, including:

  • Invoices issued and received

  • Receipts for all expenses

  • Bank statements

  • Mileage logs (if claiming vehicle expenses)

  • Wage and PAYE records (if you have employees)

Using accounting software like Xero, MYOB, or Reckon can simplify this process.

2. Track Income and Expenses

All your income (including cash jobs) must be reported to IRD. Failing to do so is tax evasion.

Expenses must be documented and justifiable as business-related. We’ll dive into what can be claimed below.

3. Reconcile Bank Accounts

This ensures your bank transactions match your accounting records. Do this monthly to avoid errors.

4. Prepare GST Returns (If Registered)

If your annual turnover exceeds $60,000, you must register for GST (Goods and Services Tax). You’ll need to file GST returns (monthly, two-monthly, or six-monthly) and:

  • Add 15% GST to your invoices

  • Claim GST on business-related purchases

5. File Annual Tax Returns

Depending on your structure, you’ll file:

  • Individual Income Tax Return (IR3) for sole traders

  • Company Tax Return (IR4) for companies

  • Partnership Tax Return (IR7) for partnerships

You’ll also need to pay Provisional Tax if your residual income tax is more than $5,000.

4. Common Business Expenses You Can Claim

As a tradesman or contractor, you incur many costs in the course of your work. Fortunately, many of these are tax-deductible, which reduces your taxable income. Here’s a breakdown of what you can claim:

✅ Vehicle and Travel Expenses

If you use a vehicle for work (site visits, picking up tools, etc.), you can claim:

  • Fuel

  • Repairs and maintenance

  • WOF and registration

  • Insurance

  • Depreciation

You can use either the kilometre rate method or the actual cost method. Keep a logbook to record business vs personal use.

Travel expenses like accommodation, meals (within limits), and flights for work-related trips are also claimable.

✅ Tools and Equipment

You can claim:

  • Purchase of tools (fully deductible if under $1,000 per item)

  • Repairs and maintenance

  • Hire of equipment

  • Safety gear and protective clothing

Items over $1,000 are capital assets and must be depreciated over time.

✅ Materials and Supplies

Any materials used for your jobs (e.g., timber, nails, wires, paint) are fully deductible.

✅ Home Office Expenses

If you run your business from home, you may claim a portion of:

  • Rent or mortgage interest

  • Power

  • Internet

  • Phone

  • Insurance

Calculate the home office portion based on the floor area used for business versus the total area of your home.

✅ Accounting and Legal Fees

Professional services like accountants, bookkeepers, or legal advice related to your business are deductible.

✅ Advertising and Marketing

Costs to promote your business such as:

  • Website hosting

  • Google/Facebook Ads

  • Signage

  • Flyers

  • Vehicle decals

✅ Insurance

Business-related insurances such as:

  • Public liability

  • Tool or asset insurance

  • Vehicle insurance (if used for work)

✅ Training and Memberships

Relevant courses or industry certifications, as well as union or trade association fees, may be deductible.

5. Expenses You Cannot Claim

It’s important to know what not to claim, to stay on the right side of IRD. You cannot claim:

  • Personal expenses (holidays, family costs)

  • Clothing that is not protective or branded

  • Fines or penalties

  • Entertainment (with few exceptions)

  • Meals for yourself during routine workdays

If you’re unsure about a specific expense, check with your accountant or the IRD website.

6. Key Tax Rules for Tradesmen

A. Declare All Income

Even small cash jobs must be declared. IRD has increased its focus on the construction and trades sectors. Using EFTPOS or online invoicing makes income traceable and avoids suspicion.

B. Register for GST (If Required)

If your income is over $60,000 per year, GST registration is compulsory. Failing to register can result in penalties and back payments.

C. Understand Provisional Tax

If your tax bill exceeds $5,000, you’ll enter the provisional tax regime. This means paying tax in advance throughout the year (usually three installments). This prevents large end-of-year tax bills.

D. PAYE for Employees

If you hire staff, you must:

  • Register as an employer

  • Deduct PAYE and KiwiSaver

  • File payday reporting with IRD

  • Keep wage and time records

E. ACC Levies

All self-employed and contractor income is subject to ACC levies. These cover workplace injuries and vary by industry risk. You’ll receive a yearly invoice based on your income.

7. Benefits of Using an Accountant

While it’s possible to manage your accounts yourself, working with a qualified accountant offers significant advantages:

  • Maximise tax deductions

  • Avoid IRD penalties

  • Structure your business for tax efficiency

  • Manage GST and payroll obligations

  • Help with audits or disputes

Some accountants offer fixed monthly fees for tradies, which include software, advice, tax returns, and regular reporting.

8. Handy Tools for Tradies

✅ Xero / MYOB / Reckon

Cloud-based accounting software tailored to NZ tax rules.

✅ Smartly or PaySauce

Payroll services for managing PAYE and employee wages.

✅ IRD myIR Portal

Where you file taxes, view tax accounts, and communicate with IRD.

Conclusion

Being a successful tradesman or contractor in New Zealand means more than doing great work—it also requires smart financial management. Understanding your tax obligations, claiming legitimate expenses, and keeping good records are key to staying compliant and profitable.

Whether you’re a one-man band or growing your team, investing in professional accounting support and the right tools will free up your time and keep the IRD off your back.

So put down the hammer, pick up your ledger, and get your business accounting in order. Your bottom line will thank you.

Need Help with Trade Accounting?
Consider working with a local accountant who specialises in trade-based businesses. They’ll understand your needs, help with taxes, and keep your business running smoothly all year round.