Every business has a moment where the numbers don’t add up and a decision gets made.
Most of the time, that decision is forgotten by Friday.
This is the one that follows you.
In March 2026, Inland Revenue drew a line. In Revenue Alert RA 26/01, it made it explicit that PAYE deducted and not remitted is no longer just a debt problem. It is a conduct problem. And conduct problems do not end with a payment plan.
If you deduct PAYE from employees and do not pass it on, you are not simply behind on tax. Inland Revenue has made it clear this is serious conduct, carrying exposure of up to five years’ imprisonment under the Tax Administration Act 1994, and that prosecution will be considered where the behaviour is identified.
That changes the equation immediately.
Because many businesses are still treating PAYE as a pressure valve. Cashflow tightens, wages must be paid, and PAYE is pushed out.
That is no longer a grey area.
PAYE is where good businesses quietly fail
This is not about bad operators.
Most PAYE problems start in otherwise viable businesses.
A client pays late.
Retention is held back.
Margins tighten.
Costs keep running.
So PAYE is deferred to keep the business moving.
At the time, it feels rational.
But PAYE is not like income tax or GST. It is not money you owe later. It is money already deducted from employees, held on behalf of the Crown.
Once you use it to manage cashflow, you are not solving a problem. You are creating a bigger one.
This is not a payroll problem, it is a behaviour problem
Most PAYE failures are not caused by misunderstanding the rules.
They are caused by decisions made under pressure.
A business knows PAYE is due. It simply chooses, in that moment, to pay something else instead.
That is the point where Inland Revenue’s view shifts.
Because once PAYE is knowingly used to fund operations, the issue is no longer timing.
It becomes intent.
And that is when the risk moves from arrears into enforcement.
Inland Revenue’s position is predictable
From Inland Revenue’s perspective, the issue is straightforward.
The money has already been deducted. It was never the employer’s to use.
If that is not enforced, the system breaks.
The Revenue Alert is not aimed at a one-off missed payment. It is aimed at patterns. Repeated withholding. Ongoing non-remittance. Businesses effectively funding themselves using PAYE.
That is where enforcement escalates.
And once Inland Revenue forms the view that this is deliberate or reckless, the conversation changes quickly.
But enforcement alone is a blunt instrument
There is no value in pushing every PAYE case to failure.
If Inland Revenue moves too hard, too early, viable businesses are lost.
And when that happens:
- the tax is not fully recovered
- employees lose their jobs
- suppliers carry the loss
Liquidation may look decisive. It is often inefficient.
Recovery should still be the objective.
PAYE problems are solved through engagement
This is where most businesses get it wrong.
They delay. They avoid Inland Revenue. They hope the situation improves.
It does not.
The earlier you engage, the more options exist. The longer you leave it, the fewer remain.
The path out is not complicated, but it is unforgiving.
You call Inland Revenue before they call you. You stop adding to the problem while you’re solving it. You put a number on the table that you can actually meet, not the number you wish you could meet. You keep current PAYE clean from that day forward, without exception.
Miss any part of that, and you are no longer managing the problem. You are escalating it.
That is not a negotiation strategy. That is the minimum required to stay in the conversation.
Inland Revenue also has a role
This is not one-sided.
Where a business engages early, discloses properly, and shows a viable path forward, the focus should be recovery, not punishment.
That means:
- structured repayment
- sensible use of remission where justified
- restraint before escalation to liquidation
Because once a viable business is pushed over the edge, recovery drops.
That is not in anyone’s interest.
The 2026 shift is real
Revenue Alert RA 26/01 is not background noise.
It is Inland Revenue signalling that tolerance has limits.
Persistent failure to remit PAYE is no longer being treated as administrative delay. It is being framed as conduct that may justify prosecution.
Businesses need to recognise that shift.
But Inland Revenue also needs to apply it with judgement.
Not every PAYE problem is abuse. Many are the result of pressure, timing, and poor decisions made under stress.
The system works best when those situations are corrected early, not punished late.
The bottom line
PAYE problems do not fix themselves, and they do not respond well to silence.
Engage early, and there is usually something left to work with.
Leave it too long, and there is not.
By Dave Ananth, Partner at Meridian Partners
