Working as a contractor or paying contractors?
If you are in either of these situations, you should be aware that there have been changes to the way payments to some contractors are taxed.
Some contractors are subject to withholding tax on their earnings in a similar fashion to PAYE on wages and salaries. Whether a contractor’s earnings are subject to withholding tax depends on whether the work they perform is listed in a schedule to the Income Tax Act 2007. Payments for work listed in the schedule are referred to as “scheduler payments”, and are subject to compulsory deduction of tax at the rate specified. The types of work covered by this schedule include commission sales agents and labour-only contractors in the building industry. If the work a contractor performs is not listed, there is no requirement to deduct tax.
On 1 April 2017, several changes designed to introduce greater flexibility and assist contractors meet their tax obligations came into force.
If you are a contractor receiving scheduler payments, you may now elect to have tax deducted at the listed rate or at a rate of your choosing (subject to some limitations). If you are a contractor who does not receive scheduler payments, you may elect to voluntarily have tax deducted from your earnings. If you wish to have tax deducted from your earnings or wish to use a rate of your choosing, you must provide the person paying you with a tax rate notification for contractors (IR330C) to advise them of the rate at which tax is to be deducted.
If you are paying contractors who receive scheduler payments, they should provide you with an IR330C to advise you of the rate at which to deduct tax from their earnings. If a recipient of a scheduler payment fails to notify you of their name and IRD number, you must withhold tax at the rate of 45% from their earnings. If they provide this information but fail to nominate a tax rate, you must withhold tax at the rate listed in the schedule.
To find out how these changes affect you, contact your Findex Adviser.