Owing Inland Revenue is one of the most stressful positions a business owner can be in — and one of the most common. The good news is that there are two well-trodden paths out: an instalment arrangement directly with Inland Revenue, or paying the debt in full with a business loan. Neither is always right. Here’s how to compare them.
Option A: An IRD instalment arrangement
Inland Revenue can let you pay tax debt over time through an instalment arrangement. For many debts you can request one in myIR: you choose an affordable amount, a payment method, frequency (weekly, fortnightly or monthly) and a start date.
How it works in practice:
- Interest on overdue amounts continues and is included in your instalments.
- You must keep current returns filed and new tax paid on time.
- Keeping to the plan may stop Inland Revenue taking further collection action.
- If you can’t afford the minimum, Inland Revenue will contact you to discuss options.
Strengths:
- No new lender, no security, no credit check.
- Can be set up quickly for straightforward debts.
- Payments can be tailored to what you can afford.
Weaknesses:
- The debt stays on your Inland Revenue account until it’s paid.
- Breaking the arrangement can bring collection action on the full balance.
- Penalties and interest may already have added materially to the debt.
- A bank, tender panel or buyer may see or ask about it.
Option B: Pay IRD in full with a business loan
A lender advances funds that go straight to Inland Revenue, clearing the debt. You then repay the lender on an agreed schedule.
Types of funding that can be used:
- Property-secured business loans — $20,000 to $1m secured on New Zealand property, where IRD debt can be refinanced or paid out. No financials needed for the initial assessment; bad credit and arrears considered case by case.
- Unsecured business loans — sized to turnover and bank statements, usually for businesses trading 6+ months. Suited to smaller amounts.
Strengths:
- The IRD debt is cleared, and Inland Revenue’s penalties and interest on it stop.
- One lender, one repayment — especially useful when GST, PAYE and income tax are all behind.
- A clean IRD position helps with bank refinancing, tenders and business sales.
Weaknesses:
- A new debt, with its own cost. Every loan is priced on the individual situation.
- Security or guarantees are usually required.
- Takes a little longer to set up than a straightforward myIR arrangement.
Side-by-side comparison
| IRD instalment arrangement | Business loan | |
|---|---|---|
| Who you owe | Inland Revenue | The lender |
| Setup | Often in myIR | Application, assessment, documents |
| Credit check | No | Yes, at formal application |
| Security | None | Property or guarantees, usually |
| IRD interest and penalties | Interest continues on the overdue balance | IRD debt cleared |
| IRD record | Debt remains until repaid | Clean |
| Flexibility if trading dips | Contact IRD to renegotiate | Depends on loan terms |
| Best for | Smaller debts, short payoff | Larger or mixed debts, escalating penalties, clean-record needs |
How to decide: four questions
1. How big is the debt compared with monthly surplus? If you can clear it in a few months from normal trading, an arrangement is usually simplest. If it would take years, a structured loan may be more realistic.
2. Which taxes are involved? Employer deductions such as PAYE carry heavier penalty rules than most other taxes, as Inland Revenue’s late payment penalties page explains. Clearing PAYE arrears is often a priority.
3. Do you need a clean IRD position soon? Planning to refinance with a bank, tender for public sector work, bring in an investor or sell the business? Clearing the debt may be worth more than the cost of the loan.
4. Is the underlying problem fixed? Whichever route you choose, it only works if new tax is paid on time from here on. Our guide to GST and provisional tax cash planning helps with that.
A combined approach
Some businesses do both: an arrangement for a smaller, recent GST bill, and a loan to clear older, larger arrears. Or they start with an arrangement to stop escalation, then refinance it with a loan once property equity or turnover supports it.
Before you do anything
- File every outstanding return, even if you can’t pay.
- Log into myIR and note the full balance by tax type, including penalties and interest.
- Talk to your accountant about whether any penalties could be reduced.
Get an honest comparison
Ring the Hotline with your myIR balance in front of you. A specialist will compare a loan against an arrangement for your situation — and tell you if the arrangement is the better answer. Or request a call back.
Ready when you are. Ring 09 875 4577 or request a call back — a lending specialist will talk it through.