How to Pay Yourself (and Save Enough for Tax) as a Small or Medium Business Owner in New Zealand

9th October 2025
Stephen Ryan

Disclaimer: This article is intended to be a plain English, introductory guide for Small and Medium Business Owners of New Zealand on what to consider when paying yourself. Everyone's financial situation, business cashflow, and goals are different so treat this as a starting point only. For tailored advice specific to your unique situation, please contact us at info@stepaheadaccounting.co.nz. 

To keep things simple, some details have been generalised and technical points left out. Always check with your accountant about how these principles apply to your situation. 

Running your own business gives you freedom - but it creates one big question almost everyone struggles with:

"How much can I actually pay myself, while keeping enough in reserve for business bills and tax?"

The key concept behind this question is solvency - your business's legal obligation to stay financially healthy. 

Solvency means two things:

1. Your assets must be greater than your liabilities, and

2. You must be able to pay bills as they fall due

To stay solvent and stress-free, you need to understand both your cash outflows (what you owe) and cash inflows (what you’ll earn). 

💸 Step 1: Know What the Business Owes (Your Cash Outflows) 

Start by asking yourself:

“Do I have up-to-date information about what the business owes?”

You'll need to track: 

1. Shorter term debt like your suppliers, also known as trade creditors, or accounts payable.

2. Longer term debt like bank loans and overdrafts

3. Taxes, most commonly, GST and Income Tax.

Tracking short-term debts

Accounting software like Xero or MYOB makes this simple. Enter bills as they arrive, and you’ll instantly see how much you owe and when payments are due.

Tracking long-term debts

Upload your loan details to your accounting software and code repayments correctly, separating principal and interest, so the loan balances always match your bank statements.

Tracking GST

If your bank transactions are fully reconciled in Xero, you can view your current GST return at any time to see exactly how much is owed.

Tracking Income Tax

Income tax is trickier because every business is different. At the time of writing, the highest individual tax rate is 39%, so if you want to be on the safe side, set aside up to 39% of your GST-exclusive profit. For a figure more tailored to your situation, check in with your accountant.

Also pay close attention to when tax is due.
For businesses with a 31 March balance date, there are six common tax payments between mid-January and early May:

• 15 January – 2nd Provisional Income Tax instalment

• 15 January – GST for October/November

• 28 February – GST for December/January

• 7 April – Terminal Income Tax

• 7 May – 3rd Provisional Income Tax instalment

• 7 May – GST for February/March

That’s a lot of payments in a short window, right when a lot of businesses slow down over Christmas and New Year. Plan ahead and keep extra cash aside during these months.

💰 Step 2: Know What the Business Will Earn (Your Cash Inflows)

Next, ask:

“Do I have good information about what money is coming in?”

Keep an eye on:

• New sales prospects and how much work you expect to win

• Inventory levels and how quickly stock sells

• Work in progress (WIP) and potential write-offs

• Amounts owed to you (accounts receivable)

• Cash already in the bank

By tracking these regularly, you’ll have a realistic idea of future cash inflows. If your business is more established, review previous years to spot seasonal trends (like slower months or busy periods).

📊 Step 3: Use a Cashflow Forecast to Bring It All Together

Once you understand what’s coming in and going out, you can build a cashflow forecast (or ask your accountant to help prepare one).

A cashflow forecast shows:

• When money will enter and leave your account

• When you’ll be cash-rich

• When you’ll be tight on funds

Updating this regularly lets you test different pay levels and see how they affect your cash position throughout the year. Combine it with a budget and your accountant’s guidance, and you’ll know:

• How much you can safely pay yourself, and

• How much to keep aside for tax.

👥 Step 4: Drawings vs PAYE – How to Pay Yourself

Now, should you pay yourself with PAYE deducted, or simply take drawings?

PAYE Salary

PAYE only works if you business has very consistent profits AND cashflow in your business. There isn't a lot of room for flexibility and in some circumstances, especially as a business gets towards the end of its life, it can create losses in the company while tax is being paid in the shareholders names.

But it can take away a lot of thinking, especially if you've already got payroll set up for non shareholder employees.

Drawings

Most NZ business owners take drawings instead.
It’s flexible, simpler for cashflow management, and allows more room for efficient tax planning.
Drawings are transactions between you (the shareholder) and the company not business expenses, which is explained in more details in our article here: Demystifying Financial Statements.

✅ Do’s and ❌ Don’ts

✅ Do create a separate tax savings bank account
✅ Do keep your accounting software accurate and up to date
✅ Do set money aside for tax and bills — especially from January to May
❌ Don’t pay yourself everything left in the business bank account
❌ Don’t forget about ACC levies (around 2% for the earners’ levy plus an industry rate)
❌ Don’t ignore cashflow forecasts during quieter trading periods

🧾 The Bottom Line

Paying yourself isn’t just about moving money around, it’s about keeping your business solvent, healthy, and stress-free.

With a good system for cashflow forecasting and tax planning, you’ll avoid nasty surprises and feel confident your business can support both your lifestyle and its future growth.

If you’d like help setting up a pay and tax-efficient system that works for your business,
👉 Get in touch with Step Ahead Accounting by clicking here — we’ll help you stay compliant and in control of your cash.

👉 Email Now!!