Inland Revenue digs deeper into horticulture

By Susan Wynne and Victoria Guilford

On 6 August 2026, Inland Revenue issued Revenue Alert RA 26/02: Non-compliance in the horticultural sector (the "Alert"), signalling increased compliance activity across the horticulture industry. Inland Revenue considers non-compliance within the sector poses a significant risk to the integrity of the tax system and is increasing its focus on growers, contractors and subcontractors.

While the Alert focuses on specific behaviours, it should not be read narrowly. Inland Revenue has made it clear that the matters discussed are not exhaustive and that further review activity is already under way. In practice, any business operating in the horticultural sector should assume Inland Revenue may seek to understand and test its labour supply arrangements, withholding tax compliance and related tax positions.

The Alert does not introduce new law and does not represent Inland Revenue's final position. Rather, it outlines the Commissioner's current view of compliance risks within the sector and the actions Inland Revenue may take where concerns are identified.

What is Inland Revenue concerned about?

The Alert identifies four areas where Inland Revenue has observed non-compliance or heightened compliance risk:

• Failure by growers and other payers to correctly deduct withholding tax from schedular payments for cultivation contract work
• Labour contracting arrangements that obscure who is actually supplying labour, including the use of entities that issue invoices for work they did not perform
• Cash payment practices that can facilitate GST, PAYE and income tax non-compliance
• GST registration applications by entities that cannot substantiate that they are carrying on, or intend to carry on, a taxable activity. Inland Revenue has specifically highlighted concerns regarding entities established to issue false invoices.

Inland Revenue considers these arrangements can result in tax not being correctly accounted for or paid, undermine confidence in the tax system, and provide an unfair competitive advantage over compliant businesses. Inland Revenue has also signalled that it will apply greater scrutiny to new GST registration applications within the horticultural sector where the commercial activity being undertaken is unclear.

1. Contractor withholding tax remains a key focus

Many horticultural businesses engage contractors to undertake cultivation activities such as planting, pruning, thinning and harvesting. Payments for this work will often be subject to the schedular payment rules, requiring tax to be withheld from contractor payments before they are made.

Inland Revenue has identified instances where these obligations have not been applied correctly. The withholding rules may apply regardless of the contractor's legal structure, including where the contractor operates through a company (as agricultural, horticultural and viticultural companies are not excluded from the rules, unlike other company types).

Inland Revenue reminds payers that the obligation to withhold generally rests with them unless the contractor has provided a valid certificate of exemption or tailored tax rate certificate. Importantly, withholding obligations can still arise where a contractor has not provided a completed IR330C.

Businesses should ensure they have processes in place to identify when withholding obligations arise and retain appropriate supporting documentation.

2. Labour supply arrangements under scrutiny

Inland Revenue is also looking closely at labour supply arrangements within the horticultural sector. The Alert refers to arrangements where one entity invoices for labour while the work is performed by workers engaged by another entity. In some cases, Inland Revenue considers the invoicing entity may have little or no commercial involvement in the arrangement.

Inland Revenue's concern is that these arrangements can obscure:

• who actually supplied the labour
• who received payment
• whether subcontracting arrangements genuinely existed
• which party was responsible for GST, PAYE, income tax and withholding tax obligations.

Businesses should therefore review existing labour supply arrangements and ensure their contractual documentation, payment flows and operational practices are aligned and accurately reflect what is occurring in practice.

3. Cash payments remain a risk indicator

The Alert highlights Inland Revenue's concern with cash payments, including cash wages paid to workers. While cash payments are not prohibited, businesses relying on cash-based processes should expect closer scrutiny and should ensure they maintain clear records supporting the tax treatment applied for GST, PAYE and income tax purposes.

Businesses should ensure their records clearly demonstrate:

• who was paid
• what services were provided
• how the relevant tax obligations were accounted for

Robust record keeping will be particularly important where cash forms part of wider labour supply arrangements.

4. New GST registrations may face closer review

The Alert also signals increased scrutiny of new GST registration applications by entities in the horticultural sector. Inland Revenue specifically refers to entities that may have been incorporated for the purpose of issuing false invoices. Where an entity cannot satisfy Inland Revenue that it is carrying on, or intends to carry on, a taxable activity, its GST registration application may be declined.

This is a significant practical point for the sector. New entities, particularly labour contracting entities, may need to provide more substantive evidence of their commercial activities, operational capability and intended taxable activity. This may make GST registration more difficult where the commercial rationale, labour arrangements, customer base, payment flows or supporting records are unclear.

Why does this matter?

The Alert should be treated as a sector-wide compliance signal. Inland Revenue has confirmed risk assessments are under way, further investigations may follow, and review activity may extend beyond the examples discussed.

The consequences can be significant. Non-compliance with withholding obligations, or knowing involvement in tax evasion arrangements, may result in reassessments, recovery action, civil penalties and, in serious cases, prosecution. Evasion penalties can be 150% of the tax shortfall, with convictions carrying fines of up to $50,000, imprisonment for up to five years, or both.

Inland Revenue will also increase its focus on certificates of exemption and tailored tax rates, so businesses should retain current documentation supporting any reduced or nil withholding positions.

Its focus also extends beyond audits and reassessments, including closer GST registration scrutiny, stronger debt recovery and possible information sharing with agencies such as Police, Customs, the Serious Fraud Office, anti-money laundering supervisors and the Labour Inspectorate. The implications may therefore extend beyond tax penalties.

What should businesses do now?

Businesses should not wait until Inland Revenue makes contact. The Alert provides a timely opportunity to review existing processes and arrangements.

Particular attention should be given to:

• whether schedular payment withholding obligations are being correctly identified and applied
• whether current IR330C forms, certificates of exemption and tailored tax rate certificates are held, and whether certificates remain valid for the relevant tax year
• contractor onboarding, verification and payment procedures
• whether labour supply arrangements reflect commercial reality, including who performs the work and who receives payment
• GST, PAYE and income tax compliance across labour supply chains
• whether any new or proposed entity can substantiate that it is carrying on, or intends to carry on, a taxable activity for GST purposes
• the adequacy of records supporting any cash payments
• whether any historic issues should be corrected through appropriate engagement with Inland Revenue, including voluntary disclosure where relevant.

Deloitte comment

The key message is that Inland Revenue is increasing compliance activity across the horticultural sector, with a focus on labour supply arrangements, alongside increased scrutiny of GST registrations and wider sector compliance.

The Alert is relevant to all horticulture sector participants, not only those with known compliance concerns. Growers, contractors and subcontractors should review their arrangements, confirm tax responsibilities are clear, and ensure their positions can be supported if Inland Revenue reviews them. New entities should also expect closer scrutiny of GST registration applications.

Deloitte’s tax specialists can assist with contractor withholding, GST registration issues, compliance processes and voluntary disclosures. Please contact your usual Deloitte adviser to discuss how the Alert may affect your business.