Withholding tax, schedular payments, and the filing obligations when paying contractors

‍When contractor payments come with tax obligations

You've confirmed your arrangement is a genuine contractor relationship - good. But that's not quite the end of your obligations.

Depending on what the contractor does, you may still need to deduct tax before paying them. It catches a lot of businesses out, so it's worth understanding before your first contractor invoice arrives.

Schedular payments and withholding tax

Some contractor payments require you to deduct tax before paying the contractor. These are called schedular payments, and they apply when the work falls into a specific list of activities defined by IRD.

When they apply, the process looks similar to PAYE for employees: you deduct withholding tax from the payment, then file and pay that tax to IRD on the same schedule as your other payroll obligations.

When it applies The work must fall into a specific list of activities defined by IRD (see the table later in this module). If it does, withholding tax must be deducted before the contractor is paid.

When it doesn't apply (exemptions) Withholding tax doesn't apply when:

• The contractor has an exemption certificate or a 0% special tax rate certificate from IRD
• Payments are being made to the contractor's company (and the work isn't under specific excluded labour hire arrangements)
• The contractor's work isn't on the IRD activity list at all

If you're unsure whether withholding tax applies, check with IRD or your accountant before paying.

What rate to deduct

The rate depends on what the contractor gives you.

They give you an IR330C form Use the rate they've declared on it. The minimum rate a NZ resident contractor can declare is 10% (15% for non-residents).

They give you a tailored tax rate certificate from IRD Use the rate shown on the certificate. These are valid for a specific period only — the contractor needs to reapply when it expires.

They give you nothing You must deduct at the no-notification rate of 45%. That's a deliberately high rate, which is exactly why most contractors make sure to give you the form. Download the form here: IR330C Tax rate notification for contractors.

What you don't deduct

What you don't deduct from contractor payments

When paying a contractor under a schedular payment arrangement, you only deduct income tax. You do not deduct:

• KiwiSaver contributions
• Student loan repayments
• ACC earner levies (the contractor handles these themselves)

A small but important detail Calculate withholding tax on the whole dollar amount only, not including cents. It's how IRD specifies the calculation, and it's how payroll systems do it. Small detail, but it matters for filing accuracy.

A note on GST If the contractor's invoice includes GST, don't deduct withholding tax from the GST portion. Withholding tax is only calculated on the labour portion of the payment. Good payroll systems handle this automatically.

The activity table

Schedular payment activities and prescribed rates

The table below shows some of the activities that attract withholding tax, along with the prescribed tax rate for each. The prescribed rate is the starting point for that activity - contractors can choose a different rate on their IR330C.

This isn't the full list. The complete table is on the IR330C form and in Schedule 4 of the Income Tax Act 2007.

If you're unsure about whether or not your contractor’s work falls into any of these categories, check with IRD or your accountant.

Filing and paying

Withholding tax is filed and paid to IRD on the same schedule as your PAYE. If you're using payroll software, contractor withholding tax is managed in the same place as employee payroll.

Same schedule as PAYE File and pay withheld contractor tax on the same schedule as your regular payroll obligations. No separate process is needed if you're using payroll software.

Important change from 2026 IRD no longer accepts company IRD numbers for contractors through payday filing. Contractors must use their individual IRD numbers, so make sure you have the right one before your first filing.

Get the IR330C first Always get the IR330C from your contractor before you pay them. Without it, you're required to deduct at the 45% no-notification rate — and refunding that later is harder than getting the form upfront.

The bottom line

Once it's set up correctly, the process is straightforward. The key is knowing which payments attract withholding tax, getting the IR330C from your contractor before you pay them, and using a payroll system that handles the filing automatically.

Further reading

• Paying Contractors: Getting it right with withholding tax — PaySauce
• IR330C Tax rate notification for contractors — IRD
• Schedule 4, Income Tax Act 2007 — NZ Legislation