We have come across instances where some recruiters or employers have asked for Withholding Tax amounts to be itemised as a negative line on an invoice. This is not the correct accounting procedure, and will lead to significant complications for both you and your employer at the end of the financial year.

Why does it matter?

You are required to provide proof of sales to IRD should they request it, and for anyone who sends invoices, your invoices are the master record of your income.

If you were to raise an invoice for $1,000 (e.g. 10 hours at $100/hr) and then add a negative line to represent 20% Withholding Tax (e.g. -$200) then this leaves a total remaining balance of $800 to be paid to you. However, your income that must be declared to IRD is the $1,000 so by reducing the value of your invoice your "Sales receipt" will now no longer match your "Income".

What are the alternatives?

By asking you to include a negative line for Withholding Tax on your invoice, your client is most likely simply asking you to specify the amount of tax they should be paying to IRD and how much to pay to you. 

Rather than including an actual invoice line to represent the Withholding Tax to be deducted, you can instead specify the tax payment amount in the Comments section on your invoice instead, for example;

"$200 (20%) of the ex-GST total to be declared and paid to IRD as Withholding tax as a Schedular Payment".

What does your Client need to do?

For any third party wanting to declare Withholding Tax to IRD on your behalf, they are required to use a payroll system (or equivalent) to do this which means they should be loading the full payment amount of $1,000 into the system, along with the Withholding Tax rate you specified on your IR330C form, and from there, the system will work out the correct Withholding Tax amount and pay this through to IRD.

N.B. If they have not received a signed IR330C form from you, they are required to deduct Withholding Tax at the default rate of 45%. 

If they do not have a system or software that does this for them, then it may be the case that they are not actually required to deduct and pay withholding tax on your behalf, as they are legally required to declare all income to IRD as and when they make the payments (via Payday filing) which generally requires a payroll system to do so.

N.B. If a customer/third party is deducting tax prior to making payment then you must log the percentage you have agreed with them (exactly as you stated on an IR330C form) against that Client on your dashboard. If you don't do this then you will get double-taxed. 

For more information, please see here: Withholding Tax and IR330C Forms

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