Schedular Payments

Schedular payments apply to contractors across a broad spectrum of industries; from cleaners, farm workers and gardeners, to entertainers, sports people, labour only builders and fishing boat employers.  The withholding tax rate applicable depends on the industry type.
 
However, with the new rules, from 1 April 2017 contractors can choose to elect a lower withholding tax rate, down to a minimum of 10%.  This is done by the contractor electing a rate on their Tax Rate Notification for Contractors form (IR 330C) which they will provide to businesses that they invoice.
 
Withholding tax has always been required to be deducted from industries that fall within the Schedular Payment industries, so the only real change affecting these type of contractors, in regard to this area is the ability to elect the rate at which withholding tax is being deducted. 
 
Special Tax Rate

In the past, contractors that were subject to the withholding tax rules were able to apply for a certificate of exemption to not have withholding tax deducted.  Under the new rules, you can no longer apply for a certificate of exemption however, you can elect to have a zero percent withholding tax rate.  This does mean that contractors will pay their income tax through the provisional tax system.
 
The election of a zero percent withholding tax rate is done by completing an IRD Special Tax Code application form (IR23BS) and submitting this to the IRD.
 
Labour Hire Firms

The withholding tax rules have been also been extended to apply for contractors that work for "labour hire firms".  A labour hire firm has a wide definition but essentially includes "a person which has as one of its main activities, the business of arranging for a person to perform work or services directly for clients of the entity".
 
If you are a labour hire business and pay contractors to do work for your client, under a labour hire arrangement, these payments now come under the schedular payment rules and tax must be deducted.
 
For more information on the new schedular payments rules and how these might apply to you, please contact us at Stewart & Co.