The short answer
You can pay IRD tax debt in full, set up an instalment arrangement in myIR, apply for financial relief if you genuinely cannot pay, use tax pooling for some income tax, or pay tax debt with a loan. A loan clears IRD in one payment, stopping penalties and use-of-money interest, and you repay a lender instead.
Start here: get the real number
Before you choose a way to pay, you need one figure: exactly what you owe Inland Revenue today. Log in to myIR and check every tax type (GST, PAYE, income tax, provisional tax), because the overview can hide arrears sitting in a separate account.
Then do two things that cost nothing:
- File any outstanding returns. Even if you cannot pay, a filed return turns a guess into a known number. Lenders, IRD and your accountant all need it.
- Stop new debt forming. Set aside GST and PAYE from this week’s takings so the hole does not get deeper while you sort out the old balance.
With the real number in front of you, there are five ways to deal with it.
Option 1: Pay in full from your own funds
If you can pay from cash reserves, retained profit or a shareholder injection without starving the business, do it. Paying in full ends penalties and interest immediately. Just be careful not to drain the working capital you need for wages and suppliers next month, or you will be back in the same spot.
Option 2: An IRD instalment arrangement
Inland Revenue offers instalment arrangements for debt you cannot pay in full, or for tax you know you will not be able to pay by the due date. You apply in myIR, and IRD wants to know three things:
- How much you can afford to pay towards the debt
- Your preferred payment method
- When you want instalments to start
What it does well. IRD says making regular agreed payments means you pay fewer penalties. For PAYE debt, entering an arrangement also reduces the last 10% non-payment penalty to 5%. And keeping to an arrangement can stop IRD taking further collection action.
What to watch. IRD still charges interest on overdue amounts, and that interest is built into your instalments. If you just pay regularly without a formal arrangement, you can still be charged penalties and interest at the full rate. IRD may also ask for a twelve-month cash flow forecast (form IR591). And you remain an IRD debtor until the last payment clears.
Option 3: Financial relief
If you genuinely cannot meet your payments, Inland Revenue may be able to write off penalties or certain amounts. For companies, partnerships and trusts, the application asks:
- What is stopping you from repaying the debt
- Why the overdue amount was not paid on time
- The value of your assets and liabilities, and the shareholder current account position
- Whether the business tried getting a loan to pay the debt
That last question is telling. IRD expects a business with assets or borrowing capacity to explore finance first. Relief is designed for businesses that genuinely cannot pay, not for ones that would simply prefer not to.
Option 4: Tax pooling for income tax
Tax pooling lets you pay through a registered intermediary, with IRD treating the payment as made on the date the money went into the pool. It can reduce interest on late or underpaid provisional tax and income tax reassessments.
The limits matter. Tax pooling does not cover GST or PAYE. For end-of-year income tax, an intermediary can flag your account up to 75 days after the due date if a pooling agreement is in place, and reassessments allow 60 days from when IRD tells you what you owe. Older income tax debt usually falls outside these windows.
Option 5: Pay tax debt with a loan
The fifth option is to borrow, pay Inland Revenue in full, and repay a lender instead. LoansOne arranges:
- Unsecured business loans from $20,000 to $500,000, assessed mainly on bank statements, with no real estate security required in most cases
- Fast and flexible 1st or 2nd mortgages from $20,000 to $500,000 for business purposes, with no cash flow or financial records needed and bad credit OK
The tax account is cleared on settlement, so penalties and use-of-money interest stop, and IRD’s collection tools no longer apply. You make one repayment to one lender on agreed terms.
Side-by-side: which option fits?
| Pay in full | Instalment arrangement | Financial relief | Tax pooling | Business loan | |
|---|---|---|---|---|---|
| Works for GST and PAYE | Yes | Yes | Yes | No | Yes |
| IRD debt closed immediately | Yes | No | Depends on outcome | For the pooled amount | Yes |
| Interest keeps running | No | Yes, built into instalments | Depends on outcome | Reduced | Lender interest instead |
| Penalties | Stop | Reduced | May be written off | Reduced for pooled amount | Stop |
| Risk if you slip | None | IRD can resume collection | Relief may be lost | Low | Managed with the lender |
| Speed | Immediate | Depends on IRD | Weeks of assessment | Fast | Next-day funding possible |
How to decide in four questions
- Can the business pay in full without hurting operations? If yes, pay it.
- Is it income tax inside the pooling window? If yes, talk to your accountant about pooling first.
- How long would an arrangement run? Short arrangements for small debts can work well. The longer the debt stays with IRD, the more interest and risk add up, and the more a loan tends to make sense.
- Is part of it PAYE? If so, prioritise it. Unpaid employer deductions carry the heaviest penalties, as we explain in what happens if you don’t pay IRD.
Compare total cost over the same period with the compare loan offers tool, and estimate what the debt costs if left open with the IRD debt calculator. LoansOne never quotes a rate in advance: every loan is priced on your individual circumstances, and the team works to get the sharpest rate available for your situation.
Example: one debt, two paths
A Dunedin plumbing business owes Inland Revenue about $70,000, made up of two GST periods, two months of PAYE and part of last year’s income tax. The owner considers two paths.
Path A: instalment arrangement over two years. Penalties reduce, but interest runs on the reducing balance for the whole period, and missing a payment during a quiet winter could restart collection action.
Path B: unsecured loan. IRD is paid in full within days. The business repays a lender on a fixed schedule and the PAYE non-payment penalties stop immediately.
The owner lines up the full cost of each, including loan fees, and picks the one that costs less and carries less risk. This is an illustrative scenario, not a real client. Your numbers will decide which path wins for you.
Should you talk to IRD before borrowing?
Usually, yes. A quick call or myIR message confirms the exact payout figure, including penalties and interest to date, and shows IRD you are dealing with it. If collection action has started, ask what amount will stop it. Then, once a loan settles, check myIR to make sure every tax type shows a zero balance.
Common mistakes when paying off IRD debt
- Paying the oldest debt instead of the most expensive. PAYE carries the heaviest penalties. Clear it before GST or income tax.
- Paying regularly without a formal arrangement. IRD says you can still be charged penalties and interest at the full rate.
- Ignoring the next return. Clearing old debt while new GST quietly builds just moves the problem forward.
- Borrowing too little. Size any loan to the full myIR balance, including penalties and interest to date.
- Waiting for a deduction notice. Once IRD starts taking money from your bank account, your choices narrow fast.
What lenders need from you
- Your current myIR statement covering all tax types
- Three to six months of business bank statements
- Photo ID for owners or directors
- Property details if you want a secured loan
- A short explanation of how the debt arose and how you will stay current
The loan readiness check flags anything missing. For more on how lenders assess these files, see our main IRD debt loan page, and if GST or PAYE is the bulk of it, read about GST debt loans.
Next step
The worst option is waiting. Pick the route that clears the debt soonest at the lowest total cost, and act on it this week. If a loan is the answer, apply online in about 30 seconds, free and with no mark on your credit file, or call 09-888 5252 and talk it through with the team.
