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Paye or not to Paye

PAYE wages are wages taken when the details are returned to the IRD monthly on an Employer Monthly Schedule IR 348, and the PAYE on those earnings are paid to the IRD.

Non PAYE wages are generally where business profits are allocated to the owners of the business when the annual accounts are prepared and they pay the tax on this type of wage annually. They may have to pay Provisional Tax also.

PAYE wages can be paid in the following circumstances

  • To employees of any type of business entity, providing the business is registered as an employer
  • A shareholder owner of a company
  • A partner of a partnership where the other partners have agreed in writing.

PAYE wages cannot be paid by a Sole Trader to him/herself.

Non PAYE wages are normally allocated to business owners at the end of the financial year when the profitability of the company has been calculated.

It is usual in these circumstances that the business owner has been taking drawings to support him/her during the year.

Drawings is simply money withdrawn from the business bank account for the owner’s personal use, but should not be excessive to the extent the business cannot pay its debts as they become due.

Drawings are the only form of remuneration a Sole Trader can have from his/her business. When the accounts are finalised it is the profit from this type of business that is declared to be the Sole Traders taxable income and usually will have no relationship to the amount of drawings taken throughout the year.

When Non PAYE wages are allocated they are declared through the taxpayers IR3. The tax payable by the shareholder is payable by the 7th of April, 12 months after the end of that particular financial year.

If the tax payable exceeds $2,500 generally the taxpayer will be required to pay Provisional Tax which means that instead of the IRD waiting 12 months for the tax to be paid, the taxpayer has to pay instalments to the IRD during the year currently in progress.

The information above is of a general nature and has been written to provide basic information only. SBA and its employees takes no responsibility for the current accuracy of the information 

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