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.

The NZ contractor withholding tax payer workflow rests on three diagnostic questions an AP team has to answer for every invoice before the payment runs:

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, but a small number of activity classes account for almost all the schedular payments an AP team will actually process. It helps to recognise them by the AP scenario in which they show up.

Labour-only contracting in specified industries. Construction labour-only sub-trades (a builder, electrician, plumber, or plasterer charging for their labour against a head contractor's project), agricultural and forestry labour, fishing-boat crew not employed by the operator. The schedular trigger is that the contractor is supplying labour rather than a finished good or a turnkey package. Where labour-only sub-trades sit inside a wider construction contract, see NZ construction payment claim requirements for labour-only sub-trades for the adjacent Construction Contracts Act payment-claim mechanics that often apply to the same invoices.

Real estate agent commission. A real estate agency paying its licensees on commission. The schedular trigger is the commission paid by the agency to the licensee, not the principal sale proceeds the agency holds in trust for the vendor.

Board, committee, and director sitting fees. Directors of unlisted companies, committee members of incorporated societies, and board appointees paid sitting fees rather than salary. IRD's interpretation in IS 17/06 treats fees paid to directors of companies the recipient is otherwise unrelated to as schedular by default. Salary paid to an executive director under an employment relationship sits inside PAYE; the AP-side question is which channel the payment is running through.

Entertainers, models, and sportspeople. A modelling agency paying through to its models, a venue paying a performer, a marketing agency paying a non-employee for a campaign appearance. The schedular trigger is the engagement of the talent, not the fee for the agent or producer organising it.

Other specialised contracting. Freight forwarding, droving, demolition contracting, and certain caretaking and gardening engagements all appear in Schedule 4 where the work is provided as a service rather than as a packaged supply. AP teams in primary industry, logistics, construction, and property management handle these most often, and they are the ones most likely to slip through unnoticed when a head contract is booked against a non-labour GL code.

Voluntary opt-in. A contractor whose work does not appear in Schedule 4 can still elect to be treated as schedular by lodging an IR330C with you. The payer-side recognition is the form: if the contractor has filed an IR330C with a chosen rate, you apply the rate. This is common where a contractor wants tax deducted at source for cash-flow reasons rather than facing a larger provisional-tax liability later.

The inverse case. An invoice from a contractor whose work is outside Schedule 4 and who has not lodged an IR330C is paid gross with no withholding. Over-withholding by reflex (deducting tax from a freelance designer or a software consultant who is not in Schedule 4 and has not opted in) is itself an error the contractor will dispute.

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, 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.

At the end of the tax year, the contractor needs a record of the schedular payments you have made and the tax you have deducted, so they can reconcile their schedular income against their actual liability via their IR3. The data IRD surfaces to the contractor through their myIR account is built from the EI returns you filed across the year; there is no separate year-end form the payer issues. The EI returns through the year are the record, and the payer's responsibility is to make sure each one was right at the time it was filed.

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

Most schedular payment errors are caught after the fact, when a contractor reconciles their IR3 or when an EI return amendment turns up a mismatch IRD asks about. Both routes are expensive to fix, because the payment has already gone out and the EI return has already been filed. The cheaper diagnostic is on the invoice itself, before the payment runs. Five errors come up repeatedly.

Withholding on the GST-inclusive amount when the contractor is GST-registered. Diagnostic: the WT base on the EI return line equals the gross of the invoice rather than the GST-exclusive subtotal. The forward fix applies the rate to the GST-exclusive subtotal on future invoices; the past payments already made require a coordinated correction with the contractor and an amended EI return.

No IR330C on file, paying gross. Diagnostic: the vendor file has no IR330C and the EI return shows no schedular line for that contractor. Remediation is to request the IR330C, apply 45% (or 20% for non-resident companies) until it arrives, and apply the contractor's declared rate from the next payment.

Confusing schedular activities with non-schedular ones. Diagnostic: the invoice is for an activity class the AP team has not classified. A director's sitting fee booked against an "advisory services" GL code, a labour-only sub-trade booked against "materials and trades", a real estate commission routed through a property-management contract: in each case the GL coding hides what the invoice is actually for. The fix is structural — a schedule of vendors mapped to their activity class, so the schedular trigger is set at vendor level rather than re-judged invoice by invoice.

Treating schedular payments as employee PAYE. Diagnostic: the contractor appears on the payroll register rather than the AP ledger, or the EI return entry uses a PAYE tax code in place of WT. Schedular payments share the EI return with PAYE but they are not PAYE; the WT code is the marker that distinguishes them. The reverse error (treating an employee as a contractor) is a more serious one with ACC, Holidays Act, and KiwiSaver implications, but the EI-return-side symptom is the same: the wrong tax code on the return line.

Stale IR330Cs. Diagnostic: the IR330C on file is several years old and the contractor's circumstances have changed. They have since registered for GST, obtained a tailored rate certificate, or had a 0% certificate lapse, and the form no longer matches their current position. Refresh as part of the annual vendor review, and request a new IR330C whenever the contractor mentions a status change.

Every diagnostic above resolves to whether the AP team consistently captured the right data points off the contractor invoice and the IR330C: gross, GST split, GST number, NZBN, activity description, IRD number on the form, and declared rate. AP teams that hand-key these fields under deadline pressure are where most of the errors enter; AP teams that capture the fields consistently catch the errors before the EI return is filed.

That is the natural place to automate contractor invoice data extraction into the workflow. Our tool converts a contractor invoice (or a batch of them) into a structured spreadsheet row carrying exactly the fields this workflow needs (gross, GST, GST number, vendor name, activity description, invoice date) from a file upload and a short prompt. The same prompt produces the same fields on every invoice in a batch, so the input to the withholding calculation and the EI return entry is the same data shape every time. The diagnostic is still the AP team's job; the data-capture step that lets the diagnostic run consistently is the part the tool removes.