IRD is right on PAYE, but enforcement alone will break viable businesses.
Most PAYE failures do not start with fraud. They start with pressure.
I have seen that pattern from both sides, first as a prosecutor at Inland Revenue, and now acting for businesses facing the consequences. Cashflow tightens, a client pays late, and a decision is made to defer PAYE to keep the business alive. It feels temporary. It rarely is.
In March 2026, Inland Revenue made its position explicit. In Revenue Alert RA 26/01, it signalled that persistent failure to remit PAYE may attract criminal prosecution under sections 143A and 148 of the Tax Administration Act 1994. That is not a change in law. It is a change in how behaviour will be judged.
Once PAYE is treated as conduct rather than debt, the outcome changes quickly.
PAYE is where otherwise viable businesses fail
Most PAYE failures begin in businesses that are still viable.
A client pays late. Retentions are held back. Margins tighten. Costs continue to run.
At that point, PAYE is deferred to keep the business moving. Wages are paid. Staff are retained. The business survives another cycle.
But PAYE is fundamentally different from other liabilities. It is money already deducted from employees. It was never available to the business.
Once it is used for cashflow, the issue is no longer timing. That is why Inland Revenue treats it differently, and why consequences escalate quickly once a pattern forms.
This is not a payroll issue, it is a conduct issue
Businesses do not miss PAYE by accident.
The decision is usually deliberate, made under pressure, to pay something else first.
That is the point at which Inland Revenue’s view shifts. Once PAYE is knowingly used to fund operations, the issue moves beyond arrears into intent. And once intent is in play, the file moves out of collections and towards enforcement.
That is the real significance of RA 26/01. It does not create new law. It signals how Inland Revenue will assess behaviour.
Once a pattern of non-remittance is established, explanations carry little weight.
Inland Revenue is no longer treating this as a timing issue
From Inland Revenue’s perspective, the position is straightforward.
The money has already been deducted. It was never the employer’s to use.
The Revenue Alert is not aimed at a one-off missed payment. It targets repeated withholding and ongoing non-remittance, businesses effectively funding themselves through PAYE.
Once that threshold is crossed, the file changes character quickly. What began as a tax issue becomes an enforcement matter.
At that point, outcomes are no longer driven by what the business can afford. They are driven by how Inland Revenue characterises the conduct.
Enforcement alone is a blunt instrument
Inland Revenue is right on PAYE. No argument.
But enforcement on its own is a blunt instrument.
Applied too early or too rigidly, it accelerates failure rather than improving recovery. When viable businesses are pushed into liquidation, the results are predictable:
• the tax is not fully recovered
• employees lose their jobs
• suppliers carry the loss
Liquidation may appear decisive. It is often inefficient.
Once a business collapses, recovery rates fall sharply. That is not in Inland Revenue’s interest, and it is not in the wider economy’s interest.
The real issue is timing and engagement
This is where most businesses fail.
They delay. They avoid Inland Revenue. They assume the problem will resolve itself.
It does not.
There is a window where PAYE issues can still be managed. It is earlier than most businesses think, and it closes quickly.
That window requires three things:
• engagement before Inland Revenue escalates the matter
• stopping further non-remittance immediately
• putting forward a repayment proposal that is realistic, not aspirational
Miss that window, and the position changes. At that point, the business is no longer negotiating. It is reacting.
And reaction is not a strategy.
Inland Revenue also has a role
This is not a one-sided equation.
Where a business engages early, discloses properly, and demonstrates that it remains viable, the focus should be on recovery, not punishment.
That is not leniency. It is practical revenue collection.
That means Inland Revenue should be prepared to:
• accept realistic repayment arrangements
• recognise when a business remains viable
• avoid pushing matters prematurely into liquidation
Once a viable business is pushed over the edge, recovery reduces. That is a poor outcome for everyone involved.
When enforcement becomes appropriate
There is a point where enforcement is justified.
That point is not a single missed payment. It is not short-term pressure. It is not a business attempting to recover.
It is where there is a clear pattern of:
• repeated non-payment
• continued trading using PAYE funds
• lack of meaningful engagement
At that point, the issue is no longer debt. It is conduct.
And once it reaches that stage, enforcement, including prosecution, becomes a logical outcome.
The March 2026 shift is real
Revenue Alert RA 26/01 is a clear signal.
Persistent failure to remit PAYE will not be treated as administrative delay. It will be treated as conduct that may justify prosecution.
Businesses need to recognise that shift.
Inland Revenue also needs to apply it with judgement.
Not every PAYE problem is abuse. Many arise from pressure, poor decisions, and timing. 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 to silence.
Engage early, and there is usually something left to work with.
Leave it too long, and there is not.
Dave Ananth is a principal at Meridian Partners, specialising in IRD disputes, enforcement, and student loan matter. His background, profile and contact details are here.
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