Nonpayment of PAYE a serious offence

Inland Revenue (IR) is warning employers that making deductions from an employee’s salary or wages, and not passing them on to IR, is a serious offence that can lead to prison time.

IR has issued a Revenue Alert on the failure by some employers to pay PAYE deductions.

Revenue Alerts are issued by the Commissioner of Inland Revenue (CIR) about significant or emerging tax issues of concern. 

An employer must pay PAYE and other amounts deducted from an employee’s salary or wages to Inland Revenue by the due date. Other employer deductions, such as for KiwiSaver and student loans, are also included.

Making deductions and failing to pay them to Inland Revenue carries a maximum sentence of up to 5 years in prison.

Anyone who aids, abets, incites, or conspires with another person to commit to do that also commits a criminal offence. This means, for example, that the director of a company who decides that the company will not pay the deductions to Inland Revenue may be prosecuted for the company’s failure to pay.

Inland Revenue has successfully prosecuted a number of people for this type of offending, and several were sent to prison.

In one recent sentencing the Judge referenced the James case from 2010 where a Wellington property developer was told “there is nothing more corrosive to a society than an individual earning high levels of income and avoiding tax”.

In a case described as “the worst tax offending of its kind” seen in Christchurch, a woman was jailed for three years for taking $1,602,864.17 from employees wages and not passing it on to IR.

A company director also returned from Australia last year to face PAYE charges rather than face extradition.

The Revenue Alert is online Failure to pay PAYE deductions to Inland Revenue.

For more information about employer responsibilities see the IR335.pdf on the Inland Revenue website.