What’s changed and why?
Budget 2016 has introduced changes for contractors, and payers of contractors. From 1 April 2017 Withholding Tax must be deducted from all payments made to contractors working under a Labour Hire Arrangement for a Labour Hire business. For more information please click here. As a specialist technology recruitment agency, we don’t consider ourselves to be a labour hire business and we’re sure you don’t consider yourselves, as professional contractors, to be hired labour. However, the new legislation unfortunately doesn’t differentiate and includes on-hire businesses, employment agencies, contract management companies and recruitment services.
This means that from 1 April onwards it is the recruitment agency’s responsibility to ensure:
- The appropriate Withholding Tax is correctly calculated and deducted from a contractor’s payment
- Deducted tax is reported and paid to IRD on a monthly basis
What does this mean for contractors?
You’ll need to complete a Tax rate notification for contractors (IR330C) and give it to your recruitment agency by 31 March. The changes also apply even if the work was completed or the contract signed before 1 April. Under the proposed amendments there will be situations when a contractor is not able to elect their own Withholding Tax rate, these include:
- When a contractor has not met a liability under an Inland Revenue Act, the Commissioner can prescribe a rate of Withholding Tax;
- All non-resident contractors and contractors with temporary work visas, where the minimum rate is 15%, for all other contractors this is 10%;
- If a contractor has changed their rate twice in a 12-month period, they require the consent of your company to make further changes.
Summary
This new legislation is a big change and it’s important that all parties do their bit to ensure compliance and therefore avoid hefty fines. For further information please contact the Inland Revenue helpline or contact the team at RWA.