What happens if you don’t pay PAYE to IRD in New Zealand?
PAYE (Pay As You Earn) is the tax deducted from employees’ wages and paid to the IRD.
Because this tax is taken from employees on behalf of the government, it is not considered the employer’s money. For this reason, IRD treats unpaid PAYE very seriously.
If a business does not pay PAYE on time, penalties, interest, and debt recovery action may follow.
PAYE late payment penalties in New Zealand
If PAYE is not paid by the due date, IRD may apply late payment penalties.
The penalties generally follow a structure similar to this:
- 1% penalty added the day after the due date
- 4% penalty added after 7 days if the amount is still unpaid
- ongoing 1% penalties applied monthly on the remaining balance
If PAYE remains unpaid for a long period, these penalties can accumulate quickly.
Interest on unpaid PAYE
In addition to penalties, IRD charges use-of-money interest on unpaid tax.
Interest continues to accrue on the outstanding balance until the PAYE debt is fully paid. This means the longer the balance remains unpaid, the higher the total cost becomes.
What IRD can do if PAYE is not paid
If PAYE remains unpaid, IRD may begin debt recovery action.
This can include:
- setting up a repayment arrangement
- taking funds from tax refunds
- requiring a bank to pay funds from the business bank account
- engaging debt collection agencies
- taking legal action through the courts
For many businesses, these actions can create additional financial pressure and administrative stress.
Director liability for unpaid PAYE
PAYE is tax that has already been deducted from employees’ wages. Because of this, IRD can take a stronger approach compared with other tax debts.
In serious cases, company directors may be held personally liable if PAYE has been deducted from employees but not paid to IRD.
This is why it is important for businesses to stay on top of payroll obligations and PAYE payments.
What to do if you cannot pay PAYE
If a business cannot pay PAYE on time, the most important step is to contact IRD early.
In many cases, IRD may allow:
- a payment arrangement
- time to pay the outstanding balance
- possible remission of penalties in certain circumstances
Ignoring the issue usually makes the situation worse and increases the amount owed over time.
Keeping PAYE under control
PAYE is one of the most important obligations for employers in New Zealand. Making sure payroll is processed correctly and PAYE is paid on time can help avoid penalties, interest, and unnecessary stress.
If you are unsure whether your payroll and PAYE obligations are being managed correctly, getting advice early can make a significant difference.
Frequently asked questions about PAYE
What happens if PAYE is paid late in New Zealand?
If PAYE is paid late, the Inland Revenue Department may apply late payment penalties and interest on the outstanding balance. If the debt remains unpaid, IRD may also begin debt recovery action.
Can IRD remit PAYE penalties?
In some situations, IRD may consider remitting penalties if there are reasonable grounds and the taxpayer contacts them early to explain the situation.
Can directors be liable for unpaid PAYE?
Yes. Because PAYE is deducted from employees’ wages, IRD may hold company directors personally liable in serious cases where PAYE has been deducted but not paid to IRD.