IRD cracks down on unpaid PAYE and what it means for employers

Unpaid PAYE is getting more attention from the Inland Revenue Department. An April Revenue Alert flags a pattern the department is seeing more often and makes clear that where this behaviour continues, it may be treated as a serious offence, including potential prosecution. 

The Revenue Alert isn't about payroll mistakes or one-off delays. It's focusing on a specific pattern where PAYE is deducted from employees but is not being passed on to the IRD. The same issue can apply to other amounts withheld through payroll, such as KiwiSaver contributions and student loan repayments.  

What matters here is how these amounts are treated. They are collected on behalf of the IRD and are expected to be paid over in full. The alert is drawing attention to situations where that isn't happening, particularly where it’s become an ongoing rather than a one-off issue.  

If PAYE is deducted and knowingly used for anything other than paying the IRD, it can be treated as a criminal offence. That can carry penalties of up to five years imprisonment and fines of up to $50,000. Directors can also be held personally liable. 

The same applies to anyone involved in the behaviour. Aiding, encouraging, or being part of the decision not to pay PAYE can also fall within the scope of the offence. 

The Revenue Alert hasn't introduced any new rules or consequences. The IRD are simply keeping a closer watch over this.

Unpaid PAYE isn’t usually just a single missed payment that gets fixed in the next cycle. It tends to build and escalate gradually.  

Some of the signs include:

The problem typically starts with a partial payment or a small delay that the business intends to catch up before the next cycle. However, the next due date arrives and there’s a new PAYE amount due on top of what’s already outstanding. If the original balance hasn’t been cleared, the amount owed begins to grow. The longer it goes on for, the harder it gets to manage.

Penalties and interest also start to apply, and the outstanding balance becomes more visible to the IRD. What began as a short delay can quickly turn into a situation that takes time and planning to overcome.

If your business’s PAYE has started to fall behind, the priority is to stop it from rolling into the next cycle. That means dealing with both the current balance and the next due amount at the same time.  

Start by checking exactly how much is outstanding with the IRD.

Then separate the problem:  

If you can't clear everything, prioritise staying current first. That prevents the balance from growing while you deal with what's already owing.

From there, make a plan to tackle the overdue amount. That might mean setting aside a fixed amount each week or allocating a portion of incoming payments specifically to PAYE until the balance starts reducing.  

If it's clear the full amount can't be paid soon, contact the IRD. Early engagement gives more room to arrange a payment plan before the balance grows further.  The key is to stop the balance from continuing to roll forward and become even more unmanageable.

What the Revenue Alert makes crystal clear is that this is now an area the IRD is watching closely. Where a pattern of non-compliance continues, the response can go beyond penalties, and the harsher consequences become a very possible reality.

For employers, the priority is to stay on top of it. Once unpaid PAYE (or any other tax) starts snowballing, it becomes harder to bring back under control.

If you need help establishing a plan to manage unpaid PAYE and your business's cash flow, this is where advice from your accountant can be extremely beneficial.

Not working with an accountant? Beany is an online accounting and business advisory firm with clients all across New Zealand. Our team are based nationwide, from Auckland to the deep South. Get in touch or book a free discovery call to discuss how we can help your business.