Paying IRD late: what the delay really costs your business

“I’ll pay IRD next week” sounds harmless. It’s a few days, the money’s coming, and surely Inland Revenue won’t notice. It will — automatically. Late tax in New Zealand attracts penalties from the day after the due date, a much bigger penalty a week later, and interest every day in between. Left longer, it can lead to money being taken from your bank account and, for larger company debts, a mark on your credit file. This guide puts real numbers on the cost of waiting.

What penalties does IRD charge for late payment?

Inland Revenue’s late payment penalties are:

1. 1% of the unpaid tax on the day after the due date.
2. A further 4% on the seventh day after the due date, on the tax still unpaid — including the first penalty.

For some tax types, further penalties can apply while the debt stays unpaid. IRD’s page lists the details; the important point is that the first week does most of the damage.

IRD also says that if it’s your first late payment in a two-year period, it may give you a grace period before penalties apply. That’s helpful if it happens — but it’s discretionary.

What about interest?

On top of penalties, use-of-money interest (UOMI) applies to underpaid tax. Inland Revenue says it calculates interest daily, that it doesn’t compound and that it isn’t included when penalties are calculated. The rate is set by formula and changes from time to time, so check IRD’s interest page for the current figure. IRD also notes that interest paid on underpayments is deductible for business purposes.

What does a week’s delay cost in dollars?

Here’s an illustrative calculation for a GST payment, ignoring interest and any grace period:

Day	What happens	Running penalty on a $40,000 GST bill
Due date	Payment not made	$0
Day 1	1% penalty on $40,000	$400
Day 7	4% penalty on $40,400	$400 + $1,616 = $2,016
Each day	Use-of-money interest accrues	Plus interest

That’s more than $2,000 in penalties within one week on a $40,000 bill — before interest. If the business pays on day eight instead of the due date, it has effectively paid over 5% extra for one week’s delay. (Illustrative only; penalties depend on tax type, timing and your history.)

Compare that with the dollar cost of a short loan to pay on time. In many cases, a few weeks of borrowing costs less than a week of penalties. If a payment is due and the cash isn’t there, apply in about 60 seconds — funding can often be arranged within 24 hours and paid straight to IRD.

What happens if the debt stays unpaid?

Inland Revenue’s collection approach generally escalates:

1. Reminders and calls.
2. Visits and further contact for persistent debt.
3. Deduction notices under section 157 of the Tax Administration Act 1994, requiring your bank (or others who owe you money) to pay IRD directly. IRD’s standard practice statement says no court order is needed and that notices are generally a last resort — and that one won’t be issued while you keep to an instalment arrangement.
4. Credit reporting for larger company debts. From 1 April 2026, a company’s tax debt can be reported when, broadly, GST, PAYE or income tax debt is over $150,000 and 90 days overdue, or has been unpaid for more than 12 months and is at least 30% of assessable income — after collection efforts and formal notice.
5. Insolvency action in serious cases.

Each step makes the next borrowing conversation harder. A tax debt on a credit file, or a deduction notice on your bank account, can stop a bank lending to you at all. See our page on IRD deduction notices if one has already arrived.

Instalment arrangement or loan — which costs less?

Inland Revenue offers instalment arrangements through myIR. It says regular agreed payments reduce what you pay because you’ll pay fewer penalties, but warns that paying in instalments without an agreed arrangement may still attract penalties and interest at the full rate.

	Pay on time with a short loan	Agreed instalment arrangement	Do nothing
Late payment penalties	None (if paid by due date)	Reduced while the arrangement is kept	Day 1 and day 7 penalties, and more
Interest	Loan cost in dollars	Use-of-money interest continues	Use-of-money interest continues
Enforcement risk	None on that debt	Low while kept	Rising
Credit reporting risk	None	Reduced	Rising for larger company debts
Effect on bank lending	Clean record	Arrangement visible	Often a barrier

The cheapest option depends on the size of the debt, how long you’d need to repay it and what else is going on. For a small debt with steady trading, an early arrangement may be cheapest. For a larger debt, a deduction notice, or when the bank needs a clean slate, a loan often wins. Our page on IRD tax debt funding goes into the trade-offs.

What’s the cheapest way to handle a payment I can’t make?

In rough order of cost:

1. Pay on time from your own funds — set aside GST and PAYE as you go.
2. Pay on time with short-term funding, repaid from incoming receivables.
3. Set up an instalment arrangement before the due date.
4. Pay within seven days to avoid the larger penalty.
5. Set up an arrangement after the due date.
6. Do nothing — the most expensive by far.

Whatever you choose, file the return on time. Late filing has its own penalties, and an unfiled return leaves both IRD and any lender guessing at the real debt.

An illustrative comparison

A Whangārei electrical contractor has $65,000 of GST due on 28 October 2026, but a $90,000 progress payment won’t arrive until 20 November. Option A: pay late on 20 November — penalties of 1% and then 4% accrue, roughly $3,300, plus interest. Option B: a four-week cash flow loan pays IRD on 28 October; its total cost in dollars is a fraction of the penalties, and the progress payment repays it. The contractor chooses option B and keeps a clean IRD record for an upcoming bank refinance. (Illustrative only.)

How do I make sure it doesn’t happen again?

• Separate tax money into its own account every time you’re paid.
• Know every due date — our 2026–27 tax calendar lists them.
• Watch the double-up dates — 15 January and 7 May, when GST and provisional tax coincide.
• Arrange a buffer early — a line of credit set up before a squeeze.
• Talk to IRD before the due date if a payment will be late.

Does the penalty picture change for different taxes?

The day-one and day-seven penalties apply broadly across tax types, but the details after that vary. Inland Revenue’s late payment penalty page sets out which taxes attract further penalties while they stay unpaid and which don’t. PAYE and other employer deductions are treated especially seriously, because they include money deducted from employees’ wages. If your arrears include PAYE, prioritise clearing it.

Should I talk to IRD even if I’ve arranged a loan?

Yes. If a payment is going to be late, even by a day or two while funding settles, let Inland Revenue know. A short call or myIR message shows good faith, and IRD may be able to tell you exactly what’s owing so the loan covers everything. If a deduction notice or other collection step is already under way, ask what will happen once the debt is paid, so you know when your account will be back to normal. Keep a record of the conversation, including the date and the name of the person you spoke to.

Don’t let a few days cost you thousands

The cheapest tax payment is the one made on time. If a due date is close and the money isn’t, check what your business qualifies for now. Asking involves no credit check, your enquiry stays with a single specialist instead of being sent around, and a real person will help you weigh a short loan against an IRD arrangement in plain dollars. Please give the exact amount, tax type and due date on the form so we can aim to get it paid within 24 hours.