Clearing IRD arrears before they get harder to fix

Tax arrears are one of the most common reasons New Zealand businesses look for fast funding. A slow quarter, a big customer paying late, or simply a GST return that came in higher than expected, and suddenly there’s a balance owing to IRD that keeps growing.

The first thing to know: you’re not unusual, and lenders deal with this every week. The second: the earlier you act, the more options you have.

Why IRD arrears grow so quickly

When tax is paid late, IRD can add late payment penalties and use-of-money interest. Over months, a manageable bill can become a much bigger one. Beyond the cost:

• PAYE and employee deductions are money held on behalf of staff. Failing to pay them on is treated seriously, and directors can face personal consequences.
• Recovery action can include deduction notices that take money directly from bank accounts or customers who owe you.
• Liquidation is the last resort, but IRD does apply to liquidate companies with unresolved debts.

Clearing the debt, or getting a firm arrangement in place, removes that pressure.

Borrowing versus an instalment arrangement

IRD will often agree an instalment arrangement if you engage early and can show it’s realistic. That can be the cheapest route. A loan tends to make more sense when:

1. IRD won’t agree terms you can meet.
2. Recovery action has started or is threatened.
3. The arrears are mainly PAYE or employee deductions.
4. You want certainty and a single lender to deal with.
5. The penalties and interest outweigh the cost of the loan.

Your accountant can help weigh this up. Many businesses use both: a loan to clear the bulk, and an arrangement for the remainder.

Which routes are fastest

Unsecured, for smaller balances

If the business trades steadily and the arrears are modest relative to turnover, an unsecured loan or cash flow loan can clear them. Same-day funding is possible for smaller unsecured amounts. Lenders will want to see the latest statement of account from IRD and any arrangement letter.

Property-backed, for larger arrears

For larger balances, a second mortgage or caveat-style loan is often both bigger and faster, because the lender relies on the property. $20k to $250k is possible same day (property-secured), and the lender can pay IRD directly at settlement so there’s no question about where the money goes.

What to have ready

• Your latest IRD statement of account showing every tax type owing.
• Any instalment arrangement letter and evidence of payments made.
• Recent GST returns, filed and up to date.
• Six to twelve months of business bank statements.
• For property routes: the property address, an estimate of value and the current mortgage balance.

Filing all outstanding returns, even if you can’t pay them yet, is one of the most useful things you can do. It stops further late-filing penalties and gives lenders an accurate picture.

An illustrative example

A Wellington IT consultancy with eight staff fell behind during a slow year. It owes $68,000 in GST and $42,000 in PAYE, and IRD has sent a final notice. An instalment arrangement was offered, but the monthly amount isn’t affordable alongside current tax obligations.

The directors hold a home with good equity. A second mortgage of $115,000 clears the full balance, including penalties, with IRD paid directly from settlement. The business then sets up a separate tax account and transfers GST and PAYE weekly so it doesn’t build up again. The second mortgage is repaid over 18 months from trading.

Stop it happening again

• Open a separate account for GST and PAYE, and transfer into it every time you’re paid.
• Consider moving to monthly GST filing if lumpy two-monthly bills are a problem.
• Talk to your accountant about provisional tax options that fit your cash flow.
• Contact IRD as soon as you know a payment will be late.

Find the fastest route

Our funding speed finder shows whether unsecured or property-backed funding is more likely to clear your arrears in time.

Talk to IRD as well

Even while arranging a loan, let IRD know what you’re doing. A short call or myIR message explaining that funding is being arranged can pause escalation while the loan settles.

Talk to us, not a crowd of lenders

Asking what’s possible doesn’t touch your credit file, and we don’t send your details around a stack of lenders. A real person reads your enquiry, looks at the size and type of the tax debt, and calls you with a realistic plan. Be upfront about the full balance owing so the first option works. Start your enquiry.