Falling behind with IRD: what happens, and what to do first

It usually starts small. A slow month, a big customer paying late, a GST return that lands at the worst time. You tell yourself you’ll catch up next period. Then next period brings its own bill.

If that sounds familiar, you’re far from alone. Inland Revenue’s 2025 annual report shows overdue GST debt rose 15% and employer-related debt 34% in a year, with smaller businesses particularly affected. This guide explains what happens when you fall behind, and — more importantly — what to do about it, in the order a friend who knows the system would suggest.

What happens the day after a payment is missed?

According to IRD, late payment penalties generally come in stages:

Penalties aren’t usually charged on unpaid amounts of $100 or less, and first-time late payers within a two-year period may get a grace period. Late filing has its own separate penalties, which is why you should always file on time even when you can’t pay.

How does IRD escalate?

Roughly, and not always in this exact order:

1. Reminders — through myIR, letters, texts and calls.
2. Requests to engage — IRD will ask you to pay or set up an arrangement.
3. Deduction notices — IRD can require third parties, such as your bank or customers who owe you money, to pay amounts directly to IRD.
4. Credit reporting — in 2025, IRD said it would make more use of its power to share information about companies’ serious tax debt with credit reporting agencies. It has said companies that engage and keep to arrangements generally won’t be reported.
5. Court action — liquidation for companies, bankruptcy for individuals. IRD referred 650 cases to court for liquidation orders in 2024–25, up 49% on the previous year.

IRD has also said publicly that its preference is to keep viable businesses trading. In a July 2026 RNZ interview, an IRD spokesperson said the department wants people to “come to us and then have a discussion about how we can come to arrangements”. Liquidation is generally pursued where a business is genuinely not viable.

IRD is not your friend, but it isn’t your enemy either. It responds to engagement. Silence is what escalates.

What should I do first?

Here’s the order we’d suggest:

1. Keep filing

File every return on time, even if you can’t pay. This stops late filing penalties and keeps your records accurate.

2. Find out exactly what you owe

Log into myIR and note each tax type, period and balance, including penalties and interest. Knowing the real number takes a surprising amount of stress out of it.

3. Work out why it happened

Was it a one-off — a bad debt, a slow season — or a pattern? If GST and PAYE have been funding the business, the fix has to include a new habit: a separate tax account, a different GST filing frequency, or tighter credit control. Our guide to cash flow habits covers these.

4. Contact IRD early

You can request an instalment arrangement in myIR. You’ll need to say what you can afford and when payments will start. Interest continues while you pay, and you’ll need to keep new tax up to date. IRD reports that around 22% of collectable tax debt was under an active instalment plan at June 2025 — arrangements are common and normal.

5. Consider whether funding is the better route

An arrangement suits smaller, manageable debts. Funding can be better when:

• the debt is large or spans several tax types;
• penalties and interest are compounding faster than you can pay;
• you want to clear IRD entirely and deal with one planned repayment instead;
• you’re worried about credit reporting or enforcement.

A property-secured business loan can pay IRD out in full. With the lenders on our panel, that’s from $20,000 up to $1m secured on New Zealand property — home, rental, commercial or land — as a first or second mortgage. No financials or tax returns are needed for the initial assessment, which matters when your accounts have fallen behind alongside the tax. Smaller balances can sometimes be cleared with an unsecured loan based on turnover.

6. Talk to your accountant

An accountant can check your figures, spot errors, and help you present a sensible plan to IRD. If you don’t have one, now’s a good time.

What if I’m a director?

Company tax debt is generally the company’s, but directors have duties under the Companies Act, and continuing to trade while the company can’t meet its obligations can create personal risk. PAYE and GST are also viewed seriously because they’re amounts collected on behalf of the Crown. If the company is in real trouble, get professional advice promptly.

Is borrowing to pay IRD a good idea?

It can be, when it turns a growing debt into a planned one and the cause has been fixed. It isn’t, if the business will fall behind again next period — then borrowing just adds a second creditor. Our guide on when not to borrow is worth a read.

Where LendFriend fits

Tell us what’s owing and what you’ve got to work with. We’ll look at your situation honestly — including whether an IRD arrangement might be enough on its own — and if funding makes sense, match you with a lender from our panel that handles tax debt regularly. Every loan is priced on your individual circumstances. You decide.