IRD Issues Warning: Employers Must Pass On PAYE Deductions
The Inland Revenue has issued a strong warning to employers across New Zealand: failing to pass on PAYE deductions from employee wages can result in serious legal consequences — including criminal prosecution and imprisonment.
This warning comes in the form of a “revenue alert,” which is typically issued when Inland Revenue identifies significant or emerging risks within the tax system. In this case, the concern is clear — some employers are deducting PAYE and other amounts from employee wages but not forwarding these funds to Inland Revenue by the required due dates.
PAYE is Not Your Money
One of the most important principles for employers to understand is that PAYE is not business income. It is money deducted from employees’ wages and held in trust by the employer until it is paid to Inland Revenue.
This distinction is critical. While a business may face challenges paying its own tax obligations, failing to pass on PAYE is treated far more seriously because it involves the misuse of funds that belong to employees and the Crown.
Tax experts have long emphasised that not paying PAYE is considered a serious breach of trust. Inland Revenue has reinforced this position by taking enforcement action in several cases, including prosecutions that have resulted in prison sentences.
Increasing Focus and Enforcement
The renewed warning reflects a broader trend of increased enforcement activity. Inland Revenue has indicated that employer-related tax debt has grown significantly over time, rising from approximately $800 million in 2000 to around $2 billion by mid-2025.
During the COVID-19 period, some flexibility was provided to businesses experiencing financial hardship. However, that leniency has now largely been withdrawn, and Inland Revenue is taking a firmer stance on compliance — particularly where PAYE is concerned.
Recent cases highlight the seriousness of the issue. In one instance, an employer was sentenced to three years’ imprisonment after failing to pass on $1.6 million in PAYE deductions. These outcomes demonstrate that Inland Revenue is prepared to pursue criminal action where there is deliberate or prolonged non-compliance.
Director and Third-Party Liability
The consequences are not limited to the company itself. Directors and individuals involved in decision-making can also be held personally liable. Anyone who aids, abets, or knowingly allows PAYE deductions to be withheld from Inland Revenue may face prosecution.
This places a significant responsibility on directors to ensure that payroll obligations are met and that PAYE is treated as a priority payment — even during periods of financial stress.
What Employers Should Do
To avoid serious consequences, employers should take proactive steps to manage their PAYE obligations:
Ensure payroll systems are accurate and up to date
Reconcile PAYE deductions regularly
Pay all PAYE and related deductions by the due dates
Monitor cashflow to ensure funds are available for tax payments
Seek professional advice early if financial difficulties arise
If a business is already behind on PAYE payments, it is essential to engage with Inland Revenue as soon as possible. Setting up a repayment arrangement or addressing the issue early can significantly reduce the risk of escalation.
Final Thoughts
The message from Inland Revenue is clear: PAYE compliance is non-negotiable. Employers who fail to meet their obligations risk not only financial penalties but also severe legal consequences.
By understanding the importance of PAYE, prioritising payments, and seeking timely advice, businesses can protect themselves, their employees, and their directors from unnecessary risk.