If you pay a contractor for work, you must deduct tax from their pay and pass that on to IRD unless they have a Certificate of Exemption. IRD have advised that they are focussing on the kiwifruit industry and that means they will be checking contractors and growers to make sure everyone is doing it right.
Growers must sight an original of the Certificate of Exemption and must ensure it is valid. Certificates generally will be renewed annually. If a valid Certificate of Exemption is not sighted, then the grower must deduct withholding tax and pay that to the IRD via an Employer Monthly Schedule. NZKGI will be providing more information in coming newsletters and on our website and you can find out more at www.ird.govt.nz/contractors.
IRD have noticed that tax invoices from contractors are being incorrectly written up and growers are missing out. Some invoices received from contractors are deducting withholding tax before GST is applied which is incorrect and if not picked up by the orchardist results in a short-claiming of the GST input. Correct invoices should show the scheduler tax deduction being made after the GST is added. An example of the correct way to do this can be found here. more at www.ird.govt.nz/contractors. Please note that if your Contractor holds a Certificate of Exemption you are not required to deduct withholding tax (see here for further information).
As an employer, you need to file both the employer monthly schedule and employer deductions form. If you employ contractors who do not provide you with a withholding tax certificate then you are considered their employer and you must deduct tax and file the returns.
The employer monthly schedule shows the total income and deductions for your employees and contractors and allows IRD to allocate it to their individual accounts. The employer deductions form acts as a payment slip for your payment and also includes the employer superannuation contribution tax amount. If IRD don’t get both forms each month they cannot allocate your employer superannuation contributions correctly. You can find out more information here.