Tax changes for con­trac­tors

Christchurch Mail - - MOTORING -

Changes to the way schedu­lar pay­ments are taxed have im­pli­ca­tions for in­de­pen­dent con­trac­tors, mak­ing it im­por­tant peo­ple clearly un­der­stand the dis­tinc­tion be­tween some­one who is self­em­ployed and some­one who is an em­ployee.

Schedu­lar pay­ments, pre­vi­ously known as with­hold­ing pay­ments, are pay­ments made be­tween par­ties for ser­vices where the re­la­tion­ship is not strictly one of em­ployer and em­ployee.

Peo­ple re­ceiv­ing schedu­lar pay­ments are in­stead classed as in­de­pen­dent con­trac­tors.

The first change af­fect­ing in­de­pen­dent con­trac­tors is the in­tro­duc­tion of a new tax form for them, known as IR330C.

The sec­ond change is that they can now opt for vol­un­tary de­duc­tions from their pay­ments if their ac­tiv­ity is not listed on the IR330C form. The standard de­duc­tion is 20 per cent.

There must be a writ­ten agree­ment be­tween the par­ties to deduct tax, how­ever. An email is fine for this pur­pose.

At this point, a word of cau­tion: an em­ployer should make sure the per­son they are hir­ing is re­ally an in­de­pen­dent con­trac­tor. To de­ter­mine the cor­rect sta­tus, the In­land Rev­enue doc­u­ment IR336, ‘‘Self-em­ployed or an em­ployee?’’, is help­ful.

The third change is that a con­trac­tor can ei­ther choose the standard rate on the IR330C or pick their own rate.

The rate they choose must not be less than 10 per cent but can be higher than the standard rate.

To use a rate lower than 10 per cent, a special tax code must be ap­plied for. The ap­pro­pri­ate form for do­ing this is an IR23BS – Special Tax Code Ap­pli­ca­tion.

The fourth change is that the IRD can di­rect the per­son hir­ing the in­de­pen­dent con­trac­tor to make ad­di­tional de­duc­tions for such things as tax ar­rears, stu­dent loan ar­rears and non-cus­to­dial par­ent li­a­bil­i­ties.

The fifth change is that a labour hire busi­ness must deduct with­hold­ing tax made to con­trac­tors un­der a labour hire agree­ment. An ex­am­ple of a labour busi­ness would be a firm sup­ply­ing locum med­i­cal spe­cial­ists to hos­pi­tals.

Even if the in­de­pen­dent con­trac­tor is op­er­at­ing un­der a com­pany, the labour hire busi­ness is still re­quired to deduct tax at the standard rate of 20 per cent.

It is al­ways ad­vised to con­tact a char­tered ac­coun­tant or fi­nan­cial ad­viser be­fore mak­ing a fi­nan­cial com­mit­ment.

For more in­for­ma­tion, con­tact Paul Sheehan, char­tered ac­coun­tant, on 03 355 2636.

Char­tered ac­coun­tant Paul Sheehan can help peo­ple avoid any mis­un­der­stand­ings in a chang­ing tax sys­tem.

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