Say what?

Yes, you heard right. The IRD require businesses in the agricultural, horticultural and viticultural industries to deduct withholding tax from payments to contractors and pay it directly to the IRD, much in the same way as PAYE for employees. There is an exclusion for Post-Harvest Facilities contractors, although you use this at your risk.

Why my risk?

As you are obligated to deduct the withholding tax before paying it to the contractor, it is you the IRD will come to for payment. The IRD can demand it even if you paid the gross amount to your contractor. Its then up to you to recover the withholding tax element you incorrectly paid across to your contractor. This can be problematic if the contractors change regularly, are seasonal, or may simply not have the funds to repay the amount.

How much?

If you have a IR330 tax code declaration the rate is 15% of pre-GST charges. If you don't have a IR330 tax code declaration form, the rate is 30% of pre-GST charges.

The contractor may have a withholding tax exemption certificate (they use an IR332 to apply for this), which means you don't have to deduct anything.

You don't want to have to end up paying 15% more for your contractors. The IRD can go back a number of years, with late payment penalties and interest, which can make this really expensive.

What's the likelihood of this affecting me?

We have noticed increased activity in this area from the IRD. Most of the activity has come about as the IRD chase contractors dodging their tax requirements, which can naturally lead back to their customers - you.

Even if you believe you are low risk, I strongly recommend you assess your exposure and change your business processes to reduce the financial impact of any possible audit.

Speak with your Accountant now!