If you have become a labour hire contractor recently, there is a little wrinkle about billing for your time.
If you are currently contracting to a labour hire company they are required to deduct 20% withholding tax.
Schedular payments are payments made to people who are not employees but are contractors. This includes independent contractors, labour only contractors and self-employed contractors. You’re receiving schedular payments if you’re not an employee and the type of work you’re receiving a payment for is an activity listed on page 3 of the IR330C attached. With regards to deducting withholding tax, this needs to be deducted from every invoice, 20% deducted on each invoice and there is no GST on withholding tax. So the GST must be calculated on the gross amount of your bill before the 20% deduction.
Schedular tax/ Withholding tax payers are still seen as sole traders and they need to prepare a tax return at the end of the year.
The schedular tax system is just an alternative for certain industries to Provisional Tax.
You can apply to IRD for an exemption for this if you would like to. However, having the tax deducted throughout the year can be a more proactive way of managing the tax, rather than having a large tax bill at year end. This does comes down to personal preference.
Contact email@example.com for more information about whether this applies to your situation.