Income tax Dates
You need to deduct tax from contractors who receive schedular payments. Contractors that you pay should let you know their schedular or tailored tax rate, exemption for schedular payments or prescribed withholding rate.
The contractor needs to give you a completed Tax rate notification for contractors - IR330C form.
If the contractor does not give you an IR330C form, you need to deduct tax at either:
- 20% if the contractor is a non-resident company
- the 45% non-notified rate.
You'll then need to pay these deductions to us.
If we notice the contractor is using the wrong tax code, we'll write to you. This letter will tell you what their tax code should be. You'll need to start using the correct code and deduct tax based on that code.
Tailored tax rates
Some contractors can apply for a tailored tax rate. When it's about to expire, we will contact your payee in myIR in time for them to reapply. If they get a new tailored tax rate certificate, they will need to give this to you.
If the contractor does not continue to use a tailored tax rate they will need to complete a new Tax rate notification for contractors - IR330C form and give it to you.
Certificate of exemption for schedular payments
Some other contractors are exempt from having tax deducted from their payments. These include:
- resident contractors who have a certificate of exemption
- non-resident contractors who are automatically exempt or who have a certificate of exemption.
Prescribed withholding rates
A prescribed withholding rate helps contractors pay the right amount of tax throughout the year and avoid ongoing tax debt. It can include a schedular tax rate that we set and a percentage of schedular payments that needs to be paid towards existing liabilities.
If you’re paying schedular payments to somebody with a prescribed withholding rate, they’ll give you a prescribed rate withholding certificate.
You must withhold the correct amount of tax according to the prescribed withholding rate. If you are employing more than one person with a prescribed rate, make sure that you’re meeting their individual prescribed withholding rates.
You declare the rate of schedular tax deducted on your employment information as normal. Use the prescribed rate from the contractor’s prescribed rate withholding certificate. You must pay the schedular tax deducted on the relevant payment dates for your employer obligations.
You must pay the prescribed percentage to us using the contractor’s IRD number and the ARR tax code.
Deduction notices - collecting taxes from taxpayers who refuse to pay
Most taxpayers pay on time, but if they cannot and do not set up a payment plan, we may issue a deduction notice to recover the overdue debt.
A deduction notice can be sent to a third-party, requiring them to pay any money owed to a contractor to us instead.
If the taxpayer has questions about the deduction notice, ask them to contact us.
The taxpayer does not have authority to cancel their deduction notice.
What if you receive a deduction notice
The notice tells you how much to deduct up to any maximum and sets out your legal obligations. We’ll send a copy to the taxpayer if they have given us a valid address.
If you receive a deduction notice:
- Deduct the amount shown before paying the taxpayer, keep it separate from normal withholding deductions.
- You may need to deduct less so the taxpayer can meet living expenses. For schedular payments, the total withholding, including this deduction, must not be more than 50% of the gross payment.
- Adjust the deduction for any tailored tax or prescribed withholding rates that apply.
- Keep deducting until the debt is paid or we tell you in writing to stop.
If you stop making payments to the taxpayer, make sure you put a cease date in your employment information.
If you do not contact us or make the required deductions and payments by the end of the month, you may be made responsible for the debt and could be taken to court.
Tax Technical advice
Read our Standard Practice Statement to find out more about deduction notices.