NZ Contractor Withholding Tax: AP Payer Workflow (IR330C)

When you pay a New Zealand contractor whose work falls within Schedule 4 of the Income Tax Act 2007, you deduct withholding tax before paying. The rate is whatever the contractor declared on their IR330C, or the 45% no-notification rate if no IR330C is on file. The deduction is calculated on the GST-exclusive amount when the contractor is GST-registered and on the gross amount when they are not. You then report the deduction on the same Employment Information (EI) return as employee PAYE, using the WT tax code.

For each contractor invoice, an AP team needs to answer three questions before the payment run:

1. Is the activity a Schedule 4 schedular payment, or has the contractor opted in? If yes, withholding applies. If neither, pay gross.
2. Is an IR330C on file, and at what rate? A signed and dated IR330C carries the rate to apply. No IR330C on file means the no-notification default.
3. Is the contractor GST-registered? Registered contractors have a GST number and a GST line on the invoice; the withholding rate is applied to the GST-exclusive subtotal. Unregistered contractors charge no GST and the rate is applied to the gross.

The third question is the calculation's most common error point, which is why this guide walks it with worked numbers rather than the rule alone.

According to Inland Revenue's guidance on deductions from payments to contractors, if a New Zealand contractor does not give the payer an IR330C form, the payer must deduct tax at the 45% non-notified rate (or 20% if the contractor is a non-resident company). That rule is not a penalty the AP team can negotiate around; it is the default the law sets when the form is missing, and treating it that way avoids a surprisingly common AP-side error of paying gross because "we never had a form".

This walk-through is for the payer. The contractor's side (how they choose their rate, file the IR330C, and reconcile via IR3) sits separately and is not duplicated here.

Is the Activity a Schedule 4 Schedular Payment?

Schedule 4 of the Income Tax Act 2007 is the statutory list of activities for which a payer must deduct schedular payment withholding from payments to non-employees. If the work the contractor invoiced for sits in Schedule 4, withholding applies. If it does not, withholding only applies if the contractor has voluntarily opted in by lodging an IR330C with you anyway. Everything else is paid gross.

The list is long, so the AP diagnostic is to identify the activity actually being paid for. Labour-only contracting, real estate commissions, director or board fees, entertainers and modelling payments, freight forwarding, droving, demolition, caretaking, and certain primary-industry services are common Schedule 4 triggers. A contractor outside Schedule 4 is paid gross unless they have opted in by lodging an IR330C.

Boundary cases sharpen the diagnostic. A sole-trader builder who supplies both labour and materials usually splits the invoice; the labour line is schedular, the materials line is not. A director who is also an employee receives sitting fees through the schedular regime and salary through PAYE. The test is what the invoice line is actually charging for, not the contractor's overall role with the business.

The IR330C: Declared Rate, 45% Default, Tailored Exemptions

The IR330C is the contractor's Tax Rate Notification for Contractors. The contractor completes it and lodges it with you; it does not go to IRD. It sits in your vendor file alongside their bank details and tax invoice records.

Check the form for: the contractor's full legal name and IRD number, the activity description (which should match what they actually do for you), the rate they have chosen, and any indication of a tailored rate or 0% certificate-issued exemption. The form must be signed and dated. An undated or unsigned IR330C is not on file in any meaningful sense.

Declared standard rate. The most common case. The contractor selects a rate from the standard rates IRD publishes for their activity class, and the payer applies that rate to every schedular payment until a new IR330C is lodged. The payer does not second-guess the contractor's choice; if the rate is too low or too high for their circumstances, that is the contractor's problem to manage through their IR3 at year end.

No-notification 45%. If no IR330C is on file when you are preparing the payment, withhold at 45%. This applies whether the form has never been lodged, is unsigned or undated, or has been lost. AP teams that have been paying gross because "we never had a form" have already gone wrong; the absence of the form is the trigger for the 45% default. Remediation is to request the IR330C, apply 45% on payments running before it arrives, and apply the declared rate on payments after the form is on file.

Non-resident contractor 20% default. A non-resident company contracting into New Zealand and paid for schedular work without an IR330C on file defaults to 20% rather than 45%. Check the contractor's residence status before applying the no-notification default; treating a non-resident company at 45% when 20% applies still creates a mismatch the contractor will dispute.

Tailored tax rate. A contractor whose effective rate on schedular income differs significantly from any of the standard rates can apply to IRD for a tailored rate. IRD issues a certificate, the contractor records the rate on the IR330C, and the payer applies it as written. The rate might be 8%, 12.5%, 17%, or anything else. The certificate is typically valid for one tax year, and the contractor is responsible for renewing it; if it has lapsed and no new IR330C has been lodged, the form is no longer current and the 45% default applies.

0% IRD-issued exemption. Some contractors hold a 0% certificate, usually because a tax-loss carry-forward will absorb the current year's schedular income or another exemption applies. The IR330C carries the 0% rate and a reference to the certificate. When this appears on the form, the payer deducts nothing. AP teams sometimes refuse to honour a 0% election because it looks wrong, but a valid IRD certificate is what the law recognises. Apply it.

The IR330C is current until something changes (the contractor's activity, their GST status, their tailored or exemption certificate, or the tax year), and a change to any of those triggers a new form. The payer is not the auditor of those changes; the payer is responsible for acting on whatever IR330C is actually on file at the time of the payment.

GST-Registered or Not: The Amount You Withhold From

You have the rate from the IR330C. The amount you apply it to depends on the contractor's GST status. When the contractor is GST-registered, the withholding rate is applied to the GST-exclusive amount on the invoice. When the contractor is not GST-registered, the rate is applied to the gross, because there is no GST component to exclude.

You read the contractor's GST status off the invoice itself. A GST-registered contractor must show a GST number (a nine-digit IRD number) on the tax invoice and must break out the GST as a separate line, which means the document carries an explicit GST-exclusive subtotal, the GST amount, and the GST-inclusive total. An unregistered contractor charges no GST, shows no GST number, and presents a single amount. If the document is ambiguous (a GST number is shown but no GST is charged, or a GST line appears without a registration number), do not guess. Sanity-check the GST number against the NZBN register or the IRD GST registration check before processing the payment — the three-check NZBN verification workflow before paying a NZ supplier invoice sets out the active-entity, GST-registered, and name-match steps in the order an AP team can run them — and refer to the taxable supply information a NZ contractor invoice must carry to confirm whether the invoice is missing data the registered case requires.

The cleanest way to see why this matters is two invoices side by side at the same effective contract value of $1,000 of taxable supply.

Contractor A (GST-registered). The invoice carries a GST-exclusive subtotal of $1,000, GST of $150, and a gross of $1,150.

Contractor B (not GST-registered). The invoice carries a gross of $1,000 and no GST line.

Both contractors have lodged an IR330C declaring a 20% rate. The walk-through:

• Withholding tax base. $1,000 in both cases. For Contractor A, the $1,000 is the GST-exclusive subtotal; for Contractor B, the $1,000 is the gross of the invoice.
• Withholding deduction at 20%. $200 in both cases.
• Net the contractor receives. Contractor A receives $950 ($1,150 gross less $200 withholding). Contractor B receives $800 ($1,000 gross less $200 withholding).
• Amount remitted to IRD. $200 in both cases, on the next EI return.
• GST treatment for the payer. Contractor A's $150 GST is claimable by the payer in its own GST return (assuming the payer is GST-registered); Contractor B has no GST, nothing to claim.

The contrast AP teams misread is the net to the contractor. Contractor A is paid more in cash than Contractor B even though both have done $1,000 of taxable supply at the same withholding rate, because the $150 of GST is flowing through for the contractor to remit on their own GST return. The payer is not paying Contractor A more for the work; the payer is paying through the GST that the GST system reclaims.

The reflex error is to apply the withholding rate to Contractor A's gross of $1,150. At 20% the deduction would be $230 instead of $200, and the net would be $920 instead of $950. The over-deduction is small per invoice and recoverable through the contractor's IR3 at year end, but it is wrong and the contractor will challenge it.

The inverse error is treating an unregistered contractor's gross as if it included GST. Contractor B's $1,000 is the WT base; backing out a 15% notional GST line under-deducts the withholding and produces a mismatch on the EI return.

If the GST treatment on the invoice does not match the GST status you have on file for the vendor, fix the invoice before the payment runs. Either the registered contractor has issued an invoice without the GST line they were required to break out, or the unregistered contractor has charged GST they have no right to collect; either way, processing the payment as it stands creates a downstream reconciliation problem.

From the Per-Payment Deduction to the EI Return and Year-End Record

Once the deduction is calculated and the contractor has been paid the net, the AP team's responsibility shifts from the calculation to the report. Schedular payments and the withholding deducted from them are reported on the same Employment Information (EI) return as employee PAYE, on the same payday-filing schedule the payer uses for staff. The deduction is identified on the return by the WT tax code, which distinguishes it from the M, ME, S, SH, ST, and other tax codes that apply to employee PAYE.

Each schedular payment becomes a line on the EI return. The line carries:

• The contractor's IRD number.
• The gross schedular payment, meaning the WT base. For a GST-registered contractor this is the GST-exclusive amount of the invoice; for an unregistered contractor this is the gross of the invoice.
• The amount of tax deducted.
• The WT tax code.

This is one line per contractor per pay event, not a monthly aggregate. If the same contractor invoices three times in a payday-filing period and you pay all three, three lines go on the return, each with its own gross schedular payment and its own withholding amount.

The cadence follows the payer's payday filing for employees. A payer with employees files an EI return within two working days of each payday, and the schedular payments made in the same window are reported on the same return. A payer with only contractors still files an EI return for the schedular payments it has made; smaller payers under the IRD threshold for monthly filing can file once a month rather than per payday, but the per-contractor data on the return is the same either way. The EI return file format itself, including the field schema and validation rules, is a separate matter from the per-contractor entry covered here.

The EI return is the payer's record. IRD surfaces that data to the contractor in myIR for their IR3 reconciliation, so the payer's job is accurate per-payment reporting rather than a separate year-end form.

How the contractor declares their rate on the IR330C, reconciles schedular payments against actual liability via the IR3, and receives a refund where a tailored rate produces one is covered in the contractor-side IR330C and IR3 reconciliation workflow. This article stops at the payer's boundary. The contractor's reconciliation is not the AP team's problem to solve; what the AP team owes the contractor is accurate records, filed on time, that the reconciliation can rely on.

Common AP Errors and the Diagnostic on the Invoice

Before each payment run, check five points:

1. The WT base is GST-exclusive only when the contractor is GST-registered.
2. No IR330C means 45%, or 20% for a non-resident company.
3. The activity is in Schedule 4, or an opt-in IR330C exists.
4. The EI line uses WT rather than a PAYE code.
5. The IR330C still matches the contractor's current GST registration or tailored-rate certificate status.

Every diagnostic above depends on capturing the same data points from the contractor invoice and the IR330C: gross, GST split, GST number, NZBN, activity description, IRD number on the form, and declared rate.

Automate contractor invoice data extraction at the intake step: capture gross, GST, GST number, vendor name, activity description, and invoice date into the same spreadsheet shape for every invoice in the batch. The AP team still makes the withholding decision; the tool removes the inconsistent hand-keying that makes the decision harder to audit.