PAYE – It was never your money

Inland Revenue’s recent alert (RA 26/01) clarifies a critical distinction: PAYE is not a standard business bill.

Because these funds are deducted from employee wages, the IRD views them as money held “in trust” for the Crown. Using these funds to cover other business costs is now viewed as misappropriation, not just a late payment.

Escalation to criminal charges IRD is moving away from just use of money interest and penalties (late payment and shortfall), and toward criminal prosecution for those initially using PAYE as an interest-free loan.

• Prison time: Serious or repeated failures can lead to up to five years in prison.
• Personal liability: Directors can be held personally and criminally responsible for these decisions; the “company” shield will not protect you.

How IRD judges conduct

The department looks for patterns of behaviour rather than one-off accidents:

• Intentional deferral: Choosing to pay rent or suppliers over PAYE.
• Repeated failure: Missing multiple months while the business continues trading.
• Avoidance: Failing to communicate until the IRD initiates enforcement.

What you should do

If cash flow is tight, your window to act is small.

• Prioritise PAYE: This must be the first bill you pay, even if others go late.
• Engage early: Contact the IRD before the due date. They are far more cooperative with proactive businesses.

Get advice: If you’re tempted to use PAYE to survive the month, seek professional help immediately.