The way contractors pay tax changed on 1 April, giving greater choice, and making it easier to get tax right. The rules around schedular payments have changed to allow this, and are compulsory for all contractors hired by a recruiter — or other labour hire business — and those previously under schedular payment rules. Other contractors can opt in if their payer agrees to deduct tax on their behalf.
Contractors already under schedular payment rules
Contractors must complete the new tax rate notification form (IR330C) when starting any new job. On this form, they pick their preferred tax deduction rate. New Zealand tax residents can pick any rate from 10 percent to 100 percent. If you complete the form but don’t pick a tax rate, the labour hire business will deduct tax at 20 percent. If you don’t complete the IR330C, the no-notification rate of 45 percent will apply.
If you contract directly for any business and do not have to have tax deducted by the hirer, you may choose to have tax deducted from your payments. You and the payer must agree to this approach, and a written record of the agreement should be kept. If you work for several businesses, each must agree to the request. If a payer doesn’t agree, you will continue to pay tax for that work as previously. Use-of-money interest charges for underpaying provisional tax are also changing. From the 2018 tax year, new rules mean fewer people will have to pay it.
If your business hires contractors you need to follow the following steps when paying them:
- Check the accounting software includes the option to choose variable tax rates
- Brief the payroll team
- Download the new tax rate notification form (IR330C) and get contractors to complete it
- Add the contractor to your EMS and complete as for any other person receiving schedular payments — ignore additional deductions
- If you employ contractors directly, you must record the agreement with them to deduct tax.