Certain types of payments received by contractors are known as ‘schedular payments’. The schedular payments regime determines the rate of tax taken out of contractors’ pay. The tax on schedular payments is known as withholding tax.
If you’re a contractor, you may be able to choose your own tax rate.
Contractors in some industries can choose their own withholding tax rate (within limits). If the paperwork is all in order, the payer will withhold tax at the rate the contractor chooses.
Complete a Tax Rate Notification for contractors (IR330C) form to choose your tax rate. The minimum rate you can choose is 10% (or 15% if you’re a non-resident or on a temporary work visa). If you complete the form but don’t pick a tax rate, a labour hire business will deduct tax at 20 percent. If you don’t complete the IR330C, a no-notification rate of 45 percent will apply.
If you’re a self-employed contractor, you may choose to have tax deducted from your payments.
You and the payer must agree to this approach and keep a written record of the agreement. If you work for several businesses, they each must agree to the request.
Note: However, if you conduct your work via a company that you own (and invoice accordingly) then payers will not withhold tax on payments made to you. If you do invoice through a company, talk to us as there are other tax implications such as the attribution rules that need to be considered.
If your business hires contractors:
- Check your accounting software can choose variable tax rates
- Ask all contractors to complete the IR330C as standard practice
- Check all employment information you file with Inland Revenue is correct for each contractor
If you employ contractors directly, record the agreement with them to deduct tax.
There are many benefits to working as a contractor, but there are hidden costs to think about, too. Talk to us at Walker Wayland about your options.