The short answer
If you don't pay IRD, penalties start the day after the due date (1%, then 4% on day seven), and use-of-money interest builds daily. Unpaid PAYE draws extra monthly penalties. If the debt stays unpaid, IRD can take money from your bank account, report large business debt to credit agencies, and apply to liquidate a company.
The short version
Missing a tax payment is not the end of your business. Plenty of Kiwi businesses fall behind on tax and get back on track. But Inland Revenue is a patient creditor only up to a point. The longer a debt sits, the more it costs and the fewer choices you have.
This guide walks through what actually happens, roughly in the order it happens, so you know where you stand and what you can still do at each stage. Everything here is based on Inland Revenue’s own published rules and announcements as at 2026.
Stage 1: The day after the due date
The moment a payment is late, two things start:
- A 1% late payment penalty is added the day after the due date.
- Use-of-money interest begins accruing daily on the unpaid amount. It does not compound, and IRD confirms it is deductible for business purposes, but it keeps running until the debt is cleared.
IRD may give you a grace period if this is your first late payment in a two-year period. If you then miss the new date, penalties are charged back to the original due date. IRD does not charge penalties on unpaid tax of $100 or less.
Stage 2: Day seven
On the seventh day after the due date, IRD adds a further 4% penalty on the remaining tax plus penalties already charged. In one week, an unpaid bill has picked up 5% in penalties before interest.
Stage 3: Every month after that
What happens next depends on the type of tax.
| Tax type | Ongoing monthly penalty? | Extra charges |
|---|---|---|
| GST | No 1% monthly penalty | Interest keeps running |
| Income tax and provisional tax | No 1% monthly penalty | Interest keeps running |
| PAYE and other employer deductions | Yes, 1% each month | A 10% non-payment penalty, repeated each month it stays unpaid, reducing to 5% if you pay or enter an arrangement |
PAYE stands out. Because it is money deducted from your staff’s wages (including KiwiSaver and student loan deductions), Inland Revenue treats it much more seriously than other tax. Clearing PAYE should be the first priority for any business with tax debt.
Stage 4: Letters, calls and visits
Inland Revenue does try to help before it gets tough. Expect overdue notices in myIR and by post. In October 2025 IRD announced it had begun phoning customers with debts over $1,000 that were between six months and five years old, and that it would visit some in person if calls did not get a response.
This is your best window. IRD’s message has been consistent: contact it before the situation gets worse, and either pay in full or set up an instalment arrangement. Our guide on how to pay IRD tax debt sets out every option in detail.
Stage 5: Deduction notices
If offers of help are not taken up, Inland Revenue can send a deduction notice to a third party that owes you money, such as your bank or an employer. The notice requires them to pay IRD instead of you.
For a business, a bank deduction notice can mean money disappears from the trading account without warning, right before wages or a supplier run. In its October 2025 update IRD described direct bank deductions and insolvency proceedings as its final two options, and reported issuing around 16,500 notices of planned bank deductions since mid-June 2025.
Stage 6: Credit reporting
For larger business debts, Inland Revenue can share information with credit reporting agencies. From 1 April 2026, this applies where a business has:
- GST, PAYE or income tax debt over $150,000 that is 90 days overdue, or
- Debt unpaid for 12 months or more that equals 30% or more of its assessable income
IRD must have made reasonable efforts to collect (at least two automated overdue notices) and must notify the business 30 days before reporting. Once listed, suppliers and lenders checking your credit file can see it, which can tighten trade terms and make bank finance harder to get.
Stage 7: Liquidation or bankruptcy
The last resort for Inland Revenue is insolvency proceedings: liquidation for a company, or bankruptcy for an individual. It is not an idle threat. Through 2025 and into 2026, Inland Revenue has been behind the majority of company winding-up applications in New Zealand as it works through a backlog of older tax debt, and company liquidations in 2026 have been running at their highest level since 2010.
Liquidation means a liquidator takes control, sells assets and pays creditors in order. For owners, it can mean losing a business that was otherwise viable and simply caught short on tax.
What about directors personally?
For most tax types, the company owes the debt, not the directors. PAYE is different. In March 2026 Inland Revenue reminded employers that not paying PAYE deductions is a criminal offence with a maximum penalty of up to five years in prison, and that anyone who aids, abets or conspires in it, such as a director, can be charged. Prosecutions are aimed at people who deliberately keep the money, but it is another reason PAYE should never be the bill you let slide.
The full timeline at a glance
| When | What IRD can do | What you can still do |
|---|---|---|
| Day 1 | 1% penalty, interest starts | Pay in full, ask about a grace period if it is your first time |
| Day 7 | Further 4% penalty | Pay in full or arrange finance |
| Monthly | PAYE penalties keep adding | Clear PAYE first, set up an arrangement |
| Months later | Calls, letters, visits | Agree an arrangement or pay with a loan |
| Collection | Deduction notices on bank accounts | Pay in full to stop further deductions |
| Large, old debts | Credit reporting for businesses | Clear the debt before the 30-day notice expires |
| Last resort | Liquidation or bankruptcy proceedings | Act before an application is filed |
How to stop the clock
You have three realistic ways to stop a tax debt growing:
- Pay in full. Penalties and interest stop immediately.
- Agree an instalment arrangement. IRD says you will pay fewer penalties and that keeping to the arrangement can stop further collection action. Interest still runs and is built into your instalments.
- Borrow to pay IRD in full. A business loan closes the IRD debt on settlement, so penalties, interest and collection tools all stop. You repay a lender on agreed terms instead.
LoansOne arranges IRD debt loans through unsecured business loans and fast, flexible 1st or 2nd mortgages, from $20,000 to $500,000. If GST and PAYE make up most of the debt, see GST and PAYE debt loans. If the bank has already said no, our guide to what to do when the bank declines your business loan explains the alternatives, and bad credit business loans covers options where tax arrears have already hit your credit file.
Pricing is never one-size-fits-all. Every loan is priced on your individual circumstances, and the team works to get the sharpest rate available for your situation. To see what doing nothing might cost, try the IRD debt calculator.
Will IRD debt stop me getting a loan?
Not on its own. Private lenders see tax arrears often and assess them on the full picture: whether returns are filed, how the business is trading now, and what security is available. What does hurt is leaving it late. A deduction notice, a credit report listing or a winding-up application all make lenders more cautious and can slow funding down.
An example of acting early
A Nelson joinery business falls two GST periods behind after a large commercial client delays payment. The owner gets an overdue notice and, rather than wait for calls, checks the full balance in myIR the same week. The business owns its workshop, so a second mortgage clears the GST in full within days, before any deduction notice and long before the debt is large or old enough for credit reporting. This is an illustrative scenario, not a real client, but the principle holds: the earlier you act, the more options you have.
Next step
Tax debt rarely fixes itself, but it is very fixable when you move early. If you want to clear IRD in one payment, apply in about 30 seconds, free and with no mark on your credit file. An expert reviews your situation and matches you to the right lender. Prefer to talk? Call 09-888 5252.
