Snippets February 2025

Schedular tax activity by Inland Revenue

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.

Paying for flu vaccinations

Flu vaccinations are exempt from fringe benefit tax (FBT) if they are provided to employees either through a clinic set up on work premises, or where a voucher is given to the employee to use at their doctor or another clinic. This is because the vaccination falls under a specific exemption targeting a health and safety risk in the workplace.

However, there has been an inconsistency in the legislation. If an employee pays for a vaccination themselves and is then reimbursed by their employer, the reimbursement is actually taxable and subject to PAYE; due to health-related expenditure being considered to be private in nature.

This is a product of the standalone nature of the FBT rules and the employee reimbursement provisions. Something which is often misunderstood by employers.

A proposed new section of the Income Tax Act aims to resolve this issue, to ensure employers are not worse off if they follow the reimbursement path, by prescribing that an amount paid by an employer to or on behalf of an employee for a flu vaccination will be exempt income of the employee.

The draft legislation states that the amendment will be effective for the 2025 – 26 and later income years.