Some New Zealand Contractors are paying too much Tax!
Accounting for Contractors
Contractors | Consultants | Professionals | Sole Traders
There are many benefits of being a contractor. Being your own boss, the independence it brings, claiming business expenses, and the ability to set your own hours and terms of work. However a big downside of contracting and consulting is taking care of your taxes. That’s why it is important to have a good accounting team working for you. We can help you to plan for tax payments as part of your normal business process and with our affordable monthly accounting fees you have access to advice and support when you need it.
Are you paying too much Tax?
In many industries in New Zealand, the payment independent contractors receive for their service has withholding tax (scheduler payments) already deducted. Businesses that hire contractors in the construction and entertainment industries are required by IRD to deduct scheduler payments (withholding tax) on behalf of their contractors.
What is schedular payment?
Schedular payments are payments that have had income tax deducted and forwarded to IRD at the source by the payer (employer) on behalf of the contractor. The tax is deducted at a flat rate on the full income.
The standard scheduler payment tax rate is 20%.
Contractors are responsible for filing their individual income tax return IR3 at the end of the financial year (after 31 March). The scheduler payments forwarded to IRD will be used as a credit in the tax return.
Because New Zealand has progressive individual income tax rates (starting at 10.5% for the first $17,000 earned), and scheduler payments are made at a flat rate of a contractors full income, Contractors can usually expect to receive a tax refund.
However many contractors who file their own income tax return make the mistake of not claiming all their valid business expenses, paying tax on their full income or only claiming some of their direct costs. As a result many contractors in New Zealand are paying too much tax.
Full Income – Business Expenses = Taxable Income
What are valid business expenses?
In addition to purchases such as tools and materials, expenses such as motor vehicle, licenses (truck, crane), professional memberships, subscriptions, professional development & training, office equipment, laptop, mobile phone and home office expenses can be claimed to offset Business income. Claiming business expenses saves you money by reducing your taxable income.
What can contractors do to legally pay less tax?
If you are a New Zealand Contractor receiving schedular payments and do not have an accountant you are likely paying too much tax.
Getting Mt Albert Accountants to complete your tax return will ensure that are claiming all eligible business expenses and may result in you saving thousands of dollars in tax.
Our affordable monthly accounting fees provide value for money and certainty of price. Starting from $50/month plus GST, our monthly plans allow you to focus on getting the most out of your accounting service, meeting your tax obligation, and getting regular advice and support.
Your business will do better by talking to your accountant regularly.
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