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Inland Revenue has recently signalled a much tougher stance on PAYE compliance, and it’s something business owners shouldn’t brush off. A new alert from IRD makes it clear: if you deduct PAYE from employee wages and don’t pass it on, you could be heading into criminal territory.

This isn’t just a routine reminder. It’s a clear message that Inland Revenue is actively watching for this behaviour — and is prepared to act.

What’s actually at stake?

When you run payroll, you’re not just paying wages. You’re also deducting:

• PAYE

• KiwiSaver contributions

• Student loan repayments

That money doesn’t belong to your business. It’s held on behalf of Inland Revenue — essentially in trust.

The trouble starts when that money gets used to cover short-term cashflow gaps. It might feel like a temporary fix, but from IRD’s perspective, it’s a serious breach of responsibility.

Not every PAYE issue is criminal

Here’s where things get a bit more nuanced (and where many people get caught off guard).

Most PAYE issues don’t start as criminal matters. If you:

• Miss a payment

• Pay late

• Are under genuine cashflow pressure

IRD will usually treat it as a civil issue first. That means:

• Late payment penalties

• Interest charges

• Debt collection action

In some cases, they may even agree to a payment arrangement or offer relief if there’s genuine hardship.

So far, not great — but not prison-level bad either.

When things cross the line

The situation changes when intent comes into play.

Under New Zealand tax law, criminal offences arise when someone:

• Knows they’re required to pay PAYE

• Chooses not to

• Or deliberately uses that money for something else

This is often referred to as a “knowledge offence”. In plain English: it’s not just about what happened — it’s about whether you knew and did it anyway.

A simple way to think about it:

That last line is where things get serious — fast.

The potential consequences

If Inland Revenue believes the behaviour is deliberate, they may move straight past penalties and into prosecution.

That can mean:

• Significant fines

• Up to 5 years’ imprisonment

• Personal exposure for directors and decision-makers

It’s not just a business risk at that point — it becomes a personal one.

Why IRD takes this so seriously

From Inland Revenue’s perspective:

• Employees have already paid their tax

• The employer is acting as a collector, not the owner of those funds

So when PAYE isn’t passed on, it’s seen as undermining the integrity of the entire tax system — not just a missed payment.

What you should do if you’re under pressure

If cashflow is tight (and let’s be honest, that happens), the key is how you respond:

• Don’t treat PAYE as a short-term loan

• Talk to your accountant early — not when it’s already a problem

• Contact IRD before things escalate

They’re far more willing to work with you if you’re upfront, rather than reactive.

The bottom line

PAYE problems aren’t automatically criminal — but they can become that way very quickly.

The difference usually comes down to intent.

If it’s a mistake, you’re likely looking at penalties. If it’s a conscious decision to use PAYE as working capital, you’re stepping into much more serious territory.

The simplest way to stay safe? Treat PAYE for what it is: not your money, just your responsibility.