Do you have unpaid PAYE relating to employees coming to New Zealand in the short term?
Tax Alert - August 2017
By Mike Williams and April Wong
We have encountered several issues when dealing with Inland Revenue (IR) on voluntary disclosures relating to unpaid PAYE, where individuals worked in New Zealand for a short time, are no longer present in NZ and did not obtain an IRD number when they were working in New Zealand.
All individuals who come to New Zealand are required to obtain an IRD number when they start working in New Zealand – which for some is very difficult, if not impossible, as it currently requires them to have a fully functioning New Zealand bank account, which they may well not be able to get. Employers are obliged to give employees a Tax Code Declaration form (IR 330) to complete which contains information on the correct amount of tax to deduct from an employee’s wages each month – and requires the employee to have an IRD number to be able to properly complete it.
Employers may be subject to penalties and interest for failing to deduct PAYE from payments made to employees by each due date. Failing to withhold PAYE and pay this amount to IR constitutes a serious offence that can, in the very worst cases, result in prosecution. Employers that are convicted may be fined up to $50,000 and/or sent to prison for up to five years. Failing to adequately manage PAYE obligations can therefore be a very serious issue.
Filing a voluntary disclosure to declare any unpaid PAYE to IR is often a good strategy that we adopt in order to shield clients from the very worst consequences. The voluntary disclosure process aims to encourage taxpayers to “come clean” with Inland Revenue and disclose any issues with their tax returns or correct a tax liability before Inland Revenue discovers the error. By making a full voluntary disclosure, taxpayers will reduce their exposure to shortfall penalties imposed, potentially by as much as 100% if the disclosure is conducted before the notification of an audit conducted by Inland Revenue.
Resolving issues with processing voluntary disclosures
Recent experience has shown that IR representatives dealing with voluntary disclosures are unable to process submissions appropriately due to the absence of IRD numbers. Additionally, IR have also insisted that relevant employer monthly schedule forms be completed for all relevant months.
Deloitte has been able to reach an understanding with IR representatives that the hurdles to filing voluntary disclosures are less than ideal for our clients, and we have had some success in getting voluntary disclosures relating to unpaid PAYE processed with a minimum of difficulty. Furthermore, in many cases we are also able to secure adequate documentation to ensure that foreign tax credits can be claimed in the relevant overseas jurisdiction. Please contact your usual Deloitte adviser if you have any issues relating to unpaid PAYE as we may be able to mitigate your exposure to IR penalties and interest.
August 2017 Tax Alert contents