Schedular Payments: Contractor Withholding Tax in NZ

When you work as an independent contractor in certain industries, the business paying you may be required to deduct withholding tax before paying you. These payments are called schedular payments, and the withholding ensures contractors pay tax throughout the year rather than facing a large bill at year-end.

What Are Schedular Payments?

Schedular payments are payments made to contractors in specific industries or activities where IRD requires tax to be withheld at source. The payer deducts tax and passes it to IRD — similar to how PAYE works for employees.

Who Is Subject to Schedular Payments?

Withholding applies to contractors performing activities listed in Schedule 4 of the Income Tax Act, including:

• Company directors’ fees
• Labour-only building contractors
• Contractors in the agriculture, horticulture, and viticulture sectors
• Entertainers and performing artists
• Jockeys and apprentice jockeys
• Insurance commission agents
• Sales commission agents
• Freelance journalists and authors
• Election day workers

Contractors providing a mix of labour and materials (where materials are a significant component) are generally not subject to schedular payment withholding.

Standard Withholding Rates

If you don’t provide your IRD number to the payer, a default rate of 45% applies. With your IRD number provided, the standard withholding rates are:

Activity	Standard rate
Company directors	33%
Labour-only contractors	20%
Sales commission agents	20%
Insurance subagents	20%
Entertainment/performing	20%
Other scheduled activities	15%–33%

These are minimum rates — you can choose a higher rate if you expect to owe more tax.

Applying for a Special Tax Rate

If the standard rate results in too much or too little tax being withheld, you can apply to IRD for a special tax rate (or exemption). This is common when:

• You have significant business expenses that reduce your net income
• The standard rate results in over-withholding, creating cash flow problems
• Your total income puts you in a lower tax bracket

Apply using the IR330C form through myIR. IRD will assess your expected income and expenses and issue a tailored rate.

Obligations for Payers

If you’re a business paying contractors for schedular activities, you must:

1. Deduct withholding tax at the correct rate before paying
2. Report schedular payments to IRD through your employment information filing
3. Issue a summary of payments and tax deducted to the contractor (available through myIR)
4. Pay the withheld tax to IRD by the due dates

Obligations for Contractors

As a contractor receiving schedular payments, you should:

• Provide your IRD number to every payer to avoid the 45% default rate
• File an IR3 tax return at the end of each tax year
• Claim business expenses against your gross income in your return
• Pay any additional tax owing as terminal tax, or receive a refund if too much was withheld

Schedular Payments vs PAYE

It’s important to distinguish between employees and contractors. If the working arrangement is really an employment relationship, the payer should be operating PAYE — not schedular payments. IRD considers factors like control, integration, and the ability to subcontract when determining the true nature of a relationship.

Record Keeping

Both payers and contractors must keep records of all schedular payments for at least seven years, including:

• Gross amounts paid
• Tax withheld
• IRD numbers
• Dates of payment

Sources

• Schedular payments — IRD
• IR330C tax rate notification — IRD