The schedular tax regime falls under the PAYE rules and typically applies to require tax to be withheld from self-employed individuals if they perform certain types of work, which could be as diverse as ‘modelling or shearing’.
Ordinarily, most payments to contracted companies are not subject to schedular tax. However, payments to companies for the supply of labour in relation to, for example, cultivation contract work are subject to schedular tax.
Inland Revenue has recently published ‘identified non-compliance’ in this Tax scenario. In practice, IRD are requiring businesses that have already made payments to particular contracting companies without schedular tax being withheld, to require the applicable amounts to be paid to Inland Revenue by the HR contract provider.
From a commercial perspective, this is problematic because the company paying the tax to Inland Revenue may then need to revert back to the company that provided the services to seek a partial refund to reimburse it for the tax payment. Understandably, this can be frustrating for both parties involved, particularly where the company that provided the services has effectively used the cash to pay their provisional tax. Application of withholding Tax at the start of any effected contractual work is advised to ensure simplified Tax compliance.