Contractor Tax Changes                         

The IRD has changed some of the rules around withholding tax for contractors that kick in from 1^st April 2017. 

The largest of these changes is the inclusion of labour hire only companies to withhold tax from payments to their contractor clients.  Labour hire arrangements are increasing common now and a classic example is IT contractors providing services to a business with a recruitment company (the labour hire business) collecting the income from the business, deducting a small commission or fee and then paying the contractor.  Another change to contractor rules is that the labour hire business tax rules apply whether the contractor contracts individually or through a company structure.

The standard rate for labour hire business arrangements is 20%.  Contractors must complete a IR330C and provide to their recruitment company, otherwise the tax is deducted at 45%.  If this applies to you, your recruitment company would likely have been in contact with you about this already.

In exceptional cases, you can apply for a 0% rate via a Special Tax Code application if the 20% rate is not appropriate for your circumstances.

In non-labour hire arrangements contracts, a Certificate Of Exemption can be applied for if the prescribed tax rate for your business activity is not appropriate.

Other changes include the variation of the withholding tax rate to suit the contractor’s needs.  This is subject to the minimum 10% rate for residents and 15% for non-residents that apply irrespective of which business activity you come under, so you can essentially elect a rate between 10 – 100%.

If you would like to discuss how this affects you, please give the team a call.