Inland Revenue increases its focus on the horticulture sector
An important update for growers, contractors and other horticulture businesses.
Inland Revenue has issued Revenue Alert RA 26/02, announcing increased compliance activity across the horticultural sector.
The Alert identifies several areas Inland Revenue is currently paying closer attention to. If you operate as a grower, contractor, subcontractor or another business within the horticulture sector, it is worth being aware of what Inland Revenue is looking at and ensuring your existing records and processes are in order.
The Alert applies to the horticulture sector generally. It does not mean Inland Revenue considers all horticulture businesses or contracting arrangements to be of concern.
What has Inland Revenue identified?
Inland Revenue says it has encountered instances involving:
withholding tax not being correctly deducted from payments for cultivation contract work;
complex labour-supply arrangements being used to obscure the true nature of transactions;
false or unsupported invoicing; and
workers being paid in cash without the relevant tax obligations being met.
As a result, Inland Revenue intends to increase its scrutiny of growers, contractors and subcontractors.
It will also focus more closely on GST registrations, certificates of exemption, tailored tax rates and outstanding tax debt within the horticulture sector.
A reminder about schedular payments
Payments for cultivation contract work will generally be subject to the schedular payment rules. This includes certain payments made to companies where the work consists wholly or substantially of supplying labour.
Unless a contractor provides a valid certificate of exemption or a tailored tax rate certificate specifying a 0% rate, withholding tax will generally need to be deducted.
For cultivation contract work:
the standard withholding rate is generally 15%; and
the 45% non-notification rate may apply if the contractor has not provided the required name and IRD number information.
Certificates of exemption and tailored tax rate certificates are issued for a year ending 31 March. Payers should therefore ensure they hold a current copy for each relevant contractor and tax year.
Supporting records must generally be retained for at least seven years.
What does the Revenue Alert mean for horticulture businesses?
Revenue Alerts are used by Inland Revenue to highlight significant or emerging areas of concern. Inland Revenue says that by the time an alert is issued, risk assessments and some investigative work will generally already be underway.
RA 26/02 makes it clear that horticulture is currently an area of increased Inland Revenue attention.
Businesses within the sector may therefore see additional enquiries, verification activity or requests for supporting information.
No action may be required where your existing processes and records are in order. However, this is a sensible time to check that current contractor documentation is held and can be easily accessed if required.
This could include checking that you have current certificates of exemption or tailored tax rate certificates for relevant contractors and that the documentation relates to the correct tax year.
If Inland Revenue contacts you
If you receive an enquiry or request for information from Inland Revenue, make sure you understand what information is being requested and respond appropriately.
If you are unsure how the schedular payment rules apply to a particular contractor or arrangement, talk to the Bennetts Proactive team. We can help clarify the requirements and assist you in responding to Inland Revenue where necessary.
You can also read Inland Revenue’s full Revenue Alert: RA 26/02: Non-compliance in the horticultural sector.
This article provides general information only and should not be relied upon as advice for your particular circumstances.
Unsure if your contractor records are in order?
If you’re unsure how the schedular payment rules apply to your contractors, or whether you have the right documentation in place, Bennetts Proactive can help clarify the requirements.
Talk to your usual Bennetts Proactive advisor or call 07 573 8446.