On 25 September, a Christchurch man was sentenced to two years and three months in prison. Not for fraud against a customer, or theft from a stranger. For what happened to money his own employees had already had deducted from their wages – PAYE, student loan repayments, KiwiSaver – that never made it to Inland Revenue.
I’ve had several business owners ask me some version of the same question every week: “How worried should I actually be?” This case is the answer to what worry looks like at its most extreme. It’s also a useful line to draw between that extreme and where most directors carrying tax debt actually sit.
What happened
Daniel Robert Clarke ran Phil Clarke & Son Limited, a Christchurch property maintenance company that worked for rest homes. He took over running the company in May 2022, and for a while it met its tax obligations.
Between January 2023 and June 2025, that changed. On 22 separate occasions, the company deducted PAYE and other employee obligations from wages and didn’t hand it over to Inland Revenue – despite, the court was told, having enough money in the bank each time to pay it. A total of $778,852 in PAYE remains unpaid. On top of that, across 15 GST periods, $610,005 in GST was never paid at all.
The money didn’t disappear. Inland Revenue’s release states Clarke personally gained around $1.95 million from the company over that period, some of it going toward living expenses and home renovations. When the renovated house was later sold, none of the proceeds went toward the tax debt.
Clarke entered into nine separate payment arrangements with IRD. Every one of them defaulted. The company went into liquidation in July 2025. Clarke was adjudicated bankrupt in April 2026. And now, a prison sentence.
Why IRD pursued this one so hard
The judge’s comments matter here, because they explain IRD’s posture in a lot of the enforcement activity I’m seeing right now. The court was told the victims in this case were Inland Revenue and the wider community – the unpaid tax is money lost to the tax base altogether. And using that money as working capital, and as personal income, gave Clarke an unlawful advantage over every other business and taxpayer that was paying what it owed.
That’s the deterrence logic in plain terms. The tax system runs on voluntary compliance. IRD needs compliant taxpayers to see that the people who don’t comply face real consequences — otherwise the incentive to keep paying quietly erodes for everyone else.
This is the extreme end, not the norm
I want to be careful here, because I don’t want this case to make every director with a GST or PAYE debt think a prison van is coming. It isn’t. This case involved deliberate, repeated diversion of money for personal benefit over more than two years, multiple defaulted arrangements, and no genuine attempt to put things right even when the director had the means to.
That’s a different category from a business that’s simply behind – one that’s stretched by a slow quarter, a client who didn’t pay on time, or a rising cost base, and is trying to catch up. IRD’s own enforcement data backs that distinction up: the overwhelming majority of IRD’s action this year has been companies wound up through the civil liquidation process, not directors prosecuted criminally. Liquidation and prosecution are different tools for different situations.
But here’s the part directors shouldn’t miss: this case sits inside a much bigger pattern. IRD has been behind close to 80% of all company winding-up applications filed in New Zealand in recent months, chasing debt that in many cases dates back to the pandemic years when enforcement was lighter. That grace period is over. The department has more funding, more court applications in motion, and – as this case shows – is willing to go further than a wind-up when it sees deliberate misuse of money that was never the company’s to spend.
Make it right
The distinction isn’t “how much do you owe.” It’s what you did with the money, and whether you engaged honestly once things went wrong.
A director who’s behind on GST or PAYE because cash flow is genuinely tight, who’s talking to their accountant, and who’s upfront with IRD about a realistic repayment plan, is in an entirely different position to a director who’s used deducted PAYE as working capital while paying themselves and everyone else first. IRD and the courts can tell the difference, and it shapes everything that follows – whether that’s a payment arrangement, a liquidation, or, in the worst cases, a prosecution.
What to do if you’re carrying arrears right now
If you’re reading this because you recognise some of your own situation in the first half of it and not the second, here’s the honest answer: you have more room to move than you think, but that room narrows the longer you wait.
Get advice early. At Fixity we often work with businesses where court proceedings are imminent so we see this end of the spectrum. What you need when you are at this point is to consider selling down assets to pay a lump sum to IRD. Talk to your accountant about exactly where the debt sits and whether a repayment arrangement is realistic against your actual cash flow – not a hopeful one – Hope is not a strategy! If you’ve already had a payment arrangement default, or IRD has moved to formal recovery action, that’s the point to get advice from someone who works in this space specifically, before a letter turns into a court filing.
None of this is about panic. It’s about not waiting until the options that exist today are taken off the table.
Frequently Asked Questions
Can a director really go to prison just for not paying PAYE? Yes, in cases involving deliberate, repeated non-payment where money was diverted for personal benefit despite having the funds available. Most directors behind on PAYE are dealt with through debt recovery or liquidation, not criminal prosecution, prosecution is reserved for cases IRD and the courts view as deliberate evasion, not businesses simply struggling with cash flow.
What’s the difference between a company owing PAYE and a director being personally prosecuted? A company owing PAYE is a debt recovery matter, which can lead to a winding-up application and liquidation. A director is prosecuted personally when there’s evidence of deliberate action, such as using deducted employee money for personal gain, or knowingly failing to pay when funds were available, rather than the company simply running out of money.
Does IRD prosecute every director who falls behind on tax? No. The volume of IRD’s enforcement action this year has been overwhelmingly civil — liquidations and winding-up applications, rather than criminal prosecutions. Prosecution cases like this one are a small fraction of IRD’s total enforcement activity, reserved for the most serious and deliberate conduct.
What should I do if my business can’t pay PAYE this cycle? Contact IRD or your accountant before the payment is missed if at all possible, and be realistic about what a repayment plan can achieve given your actual cash flow. If you’re already behind, or a previous arrangement has lapsed, get advice early, the options available shrink significantly once formal recovery action starts.
Suggested Internal Links
* Director Personal Liability in NZ
* GST & PAYE Arrears: What Every Director Needs to Know
* What to Do If You Receive a Statutory Demand from IRD
* Signs Your Business May Be Insolvent
