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, such as modelling or shearing.
On its website Inland Revenue have noted non-compliance has been identified within the horticulture industry in relation to contractors not meeting their tax obligations. This is likely to give rise to an increase in the use of prescribed rates where additional tax needs to be withheld from payments to such contractors.
Ordinarily, most payments to companies are not subject to schedular tax. However, payments to companies for the supply of labour in relation to cultivation contract work are subject to schedular tax. Inland Revenue has also identified non-compliance in this situation.
In practice, Inland Revenue are requiring businesses that have already made payments to horticultural contracting companies without schedular tax being withheld, to require the applicable amounts to be paid to Inland Revenue.
From a commercial perspective, this is problematic because the company paying the tax to Inland Revenue then needs 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.
