Tax debt is one of the most common financial problems for New Zealand small businesses — and one of the most fixable if you deal with it early. The mistake owners make isn’t falling behind; it’s going quiet. This guide sets out the options, from least to most drastic.
How businesses end up owing IRD
Almost always, it’s a cash-flow story:
- GST collected from customers gets spent on wages and suppliers.
- A provisional tax instalment lands in a slow month.
- A bumper year produces a larger terminal tax bill than expected.
- PAYE deductions are held back to get through a tight fortnight.
- Growth consumes cash before profit catches up.
Our guides on GST filing periods and provisional tax options cover how to prevent it. This one is about what to do when it’s already happened.
Step 1: keep filing on time
Even if you can’t pay, file your returns on time. Late filing adds its own penalties, and Inland Revenue will generally want returns up to date before agreeing to an arrangement. Filing also tells you — and IRD — exactly what’s owed.
Step 2: understand what’s building
IRD debt grows through:
- late payment penalties on overdue amounts;
- use-of-money interest on unpaid tax;
- late filing penalties if returns are also late.
The longer it sits, the bigger it gets. That’s the main argument for acting now rather than waiting for a good month.
Step 3: talk to IRD about an instalment arrangement
Inland Revenue can agree to let you pay tax debt over time. The usual process:
- Make sure returns are filed (or will be filed promptly).
- Contact IRD through myIR or by phone.
- Propose a realistic repayment amount and frequency — what the business can actually sustain.
- IRD may ask about your income, expenses and assets.
- If agreed, keep every payment and keep current obligations up to date.
Pros: no new lender, no security, and IRD may be flexible where you’ve engaged early.
Cons: interest continues while the debt is outstanding; IRD may not agree to the terms you want; missing a payment can end the arrangement; and new tax still has to be paid on time on top.
If your business is in serious financial hardship, IRD also has provisions to consider that — ask them.
Step 4: consider clearing it with a business loan
A loan replaces IRD as the creditor. It makes sense when:
- IRD won’t agree to terms your cash flow can realistically support;
- the debt is part of a bigger picture — you also need working capital, a vehicle or equipment;
- you want certainty — a set repayment, rather than an open-ended arrangement;
- recovery action (like a deduction notice to your bank) would damage the business.
Property-secured
With a property-secured business loan — $20,000 up to $1m against NZ property you or a supporting party own, as a first or second mortgage — IRD debt can be refinanced or paid out. Crucially, no financials or tax returns are needed for the initial assessment, which matters when returns are behind. Bad credit, defaults and arrears are considered case by case, and funding can happen within 24 hours of approval in some cases.
Unsecured
For businesses usually trading six months or more, an unsecured loan based on turnover and bank statements can clear smaller tax debts. Weaker credit is considered.
See IRD tax debt funding for the details.
Comparing the options
| Instalment arrangement | Business loan | |
|---|---|---|
| Creditor | Inland Revenue | A lender |
| Returns up to date first? | Generally yes | Not for a property-secured initial assessment |
| Ongoing cost | IRD interest | Loan priced on your circumstances |
| Can include other funding? | No | Yes |
| Flexibility if trading dips | Talk to IRD | Talk to the lender |
| Speed | Depends on IRD | Unsecured decisions sometimes same day |
Example scenario
Example scenario — generic and illustrative. A Nelson hospitality business owes $48,000 across GST and PAYE after a poor winter, and its last income tax return is overdue. The owners have equity in their home. IRD has offered an arrangement, but the repayments would land on top of current GST and wages through spring. Instead, they use a property-secured business loan to pay IRD in full and add $20,000 of working capital for the summer stock build. Their accountant files the overdue return, and they move to two-monthly GST with a weekly set-aside.
Step 5: stop it happening again
- Separate tax account with automatic weekly transfers.
- Weekly set-aside figure from the GST & provisional tax planner.
- The right provisional tax option for your income pattern — AIM or ratio can smooth payments.
- PAYE on payday. Treat PAYE as untouchable — it’s your employees’ tax.
- A quarterly check-in with your accountant.
Get help early
Whether you go to IRD, a lender, or both, the earlier you move the more options you’ll have. Send a 60-second enquiry to talk to a Loanster lending specialist — it doesn’t affect your credit score.