Certificate of Exemption – is it valid?
Certificate of Exemption (COE) for contractors are issued by the IRD are available to all eligible taxpayers. They may be issued for up to five tax years. If a contractor has a valid COE, the orchard owner can make payments without deducting withholding tax.
For each work season you must check that the COE is still valid, you should ;
Sight the original; Check the expiry date and keep a copy
PLUS – ring the IRD TO CONFIRM ON 0800 337 772 (make sure you have the COE as they will ask questions about it)
It is the growers responsibility to check this, if you get it wrong you will have to pay the Withholding Tax to IRD and then try to get it back from the contractor.
If no valid COE is held, then you must deduct withholding tax as specified on the IR330C the contactor must give you.
Certificate Of Exemptions (COE) are credit card-sized certificates issued by the IRD and available to Individuals, Trusts, Partnerships and Companies provided they are eligible to apply and they may be issued for up to five tax years, which is determined on the contractors good tax record. If a contractor has a valid COE, the orchard owner can make payments without deducting withholding tax, but it cannot be used to exempt an employee's salary or wages from PAYE deductions.
When engaging contractors you need to be checking that the COE are still valid by sighting the original certificate, checking the expiry date and holding a copy on your file along with your other business documents. If you are not sure if the contractor has given you a valid COE you can double check by phoning the IRD on 0800 337 772, when phoning the 0800 number please make sure you have the certificate with you when you call as you will be asked questions. Our suggestion is that for each period of work undertaken by the contractors you should continue to check the COE is still valid as there may be changes before the expiry period.
If no COE is held, or if it is no longer valid, the orchard owner must register as an Employer, the contractor must complete a Tax Declaration form (IR330C) and tax must be deducted at the selected rate or 15% and returned to the IRD monthly on the Employer Monthly Schedule (EMS), alternatively the tax payer may have a Special Tax Code which will also determine the rate of tax to deduct and that too needs to be returned to the IRD monthly on the EMS. If you have employees, they will continue to have an Employment Agreement arrangement in place, they will need to complete an Tax Declaration form (IR330), PAYE will be deducted from their salary/wage and returned to the IRD monthly on the EMS.
The trap here is that situations change over time, meaning that the treatment of not having to withhold tax may have been correct historically however a contractor may no longer have a valid COE meaning the orchard owner is now responsible for withholding the tax and returning it to the IRD within the specified time period – it’s up to you to check and make sure you have it right. If you are unsure of your tax obligations here please do not hesitate to give one of our team a call to discuss.