Kiwifruit Contractor Payments

Over the last few months there have been a number of clients that have received letters from IRD in relation to payments made to labour only contractors in the kiwifruit industry. This is mainly in relation to summer and winter pruning. Generally these letters have come about because IRD are investigating a particular contractor that is possibly not doing things correctly in relation to withholding tax. In gathering information our clients have received letters from IRD asking for details of payments made to contractors they have used. IRD are being pretty pragmatic about their approach to these issues and in general are treating their investigations as an education process.
Close attention needs to be paid to payments to labour only contractors and I thought it would be useful to remind you of things to think about when paying labour only contractors.

  1. 15% Withholding tax needs to be deducted off anyone providing labour in the kiwifruit industry – this is applicable to contractors that operate as sole traders, partnerships, companies and trusts.
  2. Some contractors will hold a Certificate of Exemption that either takes away the need to deduct withholding tax completely or reduces the percentage of withholding tax.
  3. The Certificate of Exemption should be sighted with each payment that is made. Ideally you should take a copy of the certificate each time (a photo on your phone would be acceptable). There have been some cases in the area recently where Certificates of Exemption were revoked part way through the year. The contractor was supposed to let all clients know this – but failed to do so. Consequently clients that relied on his previous valid exemption certificate ran afoul of the law.
  4. Pay close attention to invoices provided by contractors and make sure you are returning the withholding tax through the PAYE system in the correct months.
  5. Watch out for the odd contractor out there that isn’t registered for GST. When coding these payments make sure GST is not triggered on the payment – or advise us of this fact. If you have a few non-GST registered contractors we can set up a new code for them which does not trigger GST automatically.

If you have any questions about this or any other matter in the payment of contractors, please do give us a call to discuss.