Cash to clear an IRD debt before penalties pile up

Tax debt seldom shows up in one dramatic moment. A GST return paid a few days late. A provisional tax instalment that slid. A terminal tax bill in February on top. Before long the balance is a figure you’d rather not look at, and every week it gets a little larger.

How the charges stack

Inland Revenue’s published rules for ordinary taxes work like this:

• A late payment penalty is applied the day after the due date.
• A further, larger penalty is added at the seven-day mark.
• For many tax types a monthly charge follows, though it does not apply to GST or income tax, including provisional tax.
• Use of money interest is charged on the unpaid amount as well.

Employer deductions are treated more severely. Employment information that isn’t paid attracts a 10% penalty, with a further 10% for each month it stays unpaid, which can be reduced when you pay or agree an arrangement. For that reason, an unpaid PAYE amount is usually the debt to tackle first. See PAYE and KiwiSaver cash flow.

A debt that seems fixed on your statement is, underneath, growing.

Four ways to deal with it

Route	In practice	Points to weigh
Instalment arrangement	Regular payments agreed with Inland Revenue, set up in myIR	Cuts penalties, but missed payments can unravel it
Unsecured business cash	Pay Inland Revenue now, repay a lender from takings	Sized on statements; tax debt weighed case by case
Property-backed cash	Clear the debt in full using equity	$20k – $5m; interest can be prepaid or added
A combination	Pay a chunk now, arrange the balance	Shortens the arrangement and the time penalties run

No choice suits everybody. The size of the debt, your weekly cash flow, whether you own property and how quickly you can repay all pull in different directions.

Tax debt weighing on the business? Tell us the amount and what’s happened. We deal with this often.

When does clearing it with finance make sense?

• The charges are climbing faster than a short-term facility with a clear exit would cost.
• An arrangement doesn’t fit your weekly cash, or the instalments Inland Revenue wants are unaffordable.
• The department has started chasing. business.govt.nz is blunt that ignoring a tax debt won’t make it vanish.
• A lease, tender or refinance is coming and a tidy tax position will help.
• Several periods have built up alongside other debts that you would like to consolidate.

For larger balances, property-backed cash tends to be the neatest route, because the security answers most of a lender’s questions and interest can be prepaid or added to the loan.

Do these things first, whichever route you choose

1. File every outstanding return. A lender needs the true position, and late filing is penalised separately.
2. Find the exact balance. Check myIR for each tax type and period.
3. Separate the debts. Employment deductions, GST and income tax behave differently.
4. Speak to Inland Revenue early. Contact before a due date, when possible, to set up an arrangement.
5. Stop it recurring. Open a separate account for GST and PAYE and move money in weekly.

What lenders look for

Tax debt on its own does not rule you out. Lenders tend to ask:

• Are all returns filed?
• Is there an arrangement, and has it been honoured?
• Is the debt growing or being reduced?
• Is the business otherwise trading well?
• How will the new facility be repaid?

A debt that is explained, with a clear plan, is far less worrying than one that is hidden. Our bank statements guide shows how arrangement payments appear and how to describe them.

If your credit file is patchy too

Tax arrears often travel with other credit blemishes. That is workable. See bad credit business loans for how lenders weigh it, and low doc loans if your accounts are behind.

An illustrative example

Illustrative only. A concrete contractor in Porirua owes $86,000, made up of two GST periods, a provisional tax instalment and penalties. Inland Revenue would accept instalments, but the weekly figure is more than the business can carry. The owner has equity in a rental property, and a secured facility settles the whole balance. Penalties stop accruing, and the single repayment is smaller than the arrangement would have been.

Take the weight off

If tax debt is hanging over the business, a conversation costs nothing. The enquiry takes about a minute, asking involves no credit check, and your details stay with one team rather than being spread around. A real person reads what you’ve said and calls you.

Straight numbers on the debt, your takings and any property help us find the route that fits.

Talk about my tax debt →