Getting business finance when you owe Inland Revenue

Tax arrears are one of the most common reasons a New Zealand business finance application stalls — and one of the most fixable. The fix is a formally agreed instalment arrangement with Inland Revenue, not an informal habit of paying what you can when you can. An arrangement reduces the penalties you end up paying compared with having no arrangement at all, but it does not stop use-of-money interest (UOMI) from accruing — that keeps running and gets folded into your instalment amounts. Get the arrangement formally in place before you apply for finance, not after, because it's the difference between a lender seeing an unpredictable liability and a defined one.

Key Takeaways

What an instalment arrangement actually is

Inland Revenue is direct about what this product is and isn't: "An instalment arrangement is a method of financial relief. It is not a method of payment. It's for debt you cannot pay in full by the due date, or overdue debt." Once agreed, you repay in set amounts — weekly, fortnightly or monthly — and "by keeping to the agreed repayment plan, you may stop us taking further collection action."

You can apply through myIR by selecting "Request an instalment arrangement," where you're asked whether you can meet the minimum weekly payment shown. If you can't, Inland Revenue calls you to discuss options directly. If you can, you choose a payment method — direct debit, credit or debit card, internet banking, or Working for Families Tax Credit entitlements — set the frequency, amount and first instalment date, and submit the calculated plan. You can also request an arrangement by sending a message in myIR or by calling directly, rather than only through the online flow.

Legally, this sits inside a formal relief framework. Under Inland Revenue's Standard Practice Statement on relief from tax debt, an instalment arrangement is one of the Commissioner's relief options alongside write-off and remission, and it "can consist of one payment or multiple payments over a period of time." The point worth holding onto: "while a taxpayer can apply for relief it is not available as of right" — this is a discretion the Commissioner exercises, not something you're automatically entitled to once you ask.

Why "I'm paying what I can" isn't the same thing

This is the detail that catches businesses out most often. Inland Revenue states it plainly: "If you pay off your debt in regular instalments (for example, with an ongoing direct debit) but do not have an agreed instalment arrangement with us, you might still be charged penalties and interest at the full rate." Setting up your own payment schedule, in good faith, without going through the formal process to get it agreed, does not give you the protection an actual arrangement does. The agreement itself is the thing that matters — not just the fact that money is moving toward the debt.

What it does to penalties — and what it doesn't do to interest

Making regular payments under a formally agreed arrangement genuinely helps: "Making regular agreed payments towards the amount you owe will reduce the amount you pay because you'll pay fewer penalties." That's the real, stated benefit — fewer penalties than you'd otherwise accumulate.

Interest works differently, and this is the part most businesses get wrong. Inland Revenue states directly: "We charge interest on overdue amounts. This interest is included as part of your instalment amounts." In other words, use-of-money interest keeps accruing for as long as the debt is outstanding, arrangement or not — an arrangement doesn't pause it, it simply means the interest gets folded into what you're paying each instalment rather than sitting as a separate shock later.

There's a structural reason the two are treated differently. Inland Revenue's relief framework defines "interest" specifically as "use-of-money interest payable by the taxpayer to the Commissioner under part 7" of the Tax Administration Act 1994, and treats it as a distinct legal category from penalties throughout its relief provisions. Penalties are a compliance consequence; UOMI is treated as its own separate thing entirely. That's why an arrangement's benefit lands on one and not automatically on the other.

Can the interest itself ever be reduced?

Yes — but only through separate, narrower relief grounds, not automatically by having an arrangement in place.

Serious hardship write-off can cover tax, interest and penalties together — Inland Revenue's own relief table lists "Tax, interest and/or penalties (no payment required)" as within scope for a hardship write-off. Worth being precise here: the underlying legal test, under section 176 of the Tax Administration Act, allows the Commissioner to give relief specifically "to the extent that it would place a natural person taxpayer in serious hardship." That wording matters if you're trading through a limited company rather than as a sole trader — this particular ground is built around a natural person, so it's a narrower door for a company than for an individual, even though an instalment arrangement itself remains available either way.

Interest specifically can also be remitted on a separate ground entirely: where a declared emergency event (by Order in Council) prevented payment, provided the taxpayer applied for the remission, paid the tax owing as soon as practicable, the Order in Council's conditions are met, and remitting is fair given the emergency. Certain penalties, separately again, can be remitted where an event or circumstance beyond the taxpayer's control — Inland Revenue's own example is the death or illness of a family member — reasonably justifies non-compliance, provided the failure was corrected as soon as practicable. A third, more general ground allows interest or certain penalties to be remitted where doing so is "consistent with the Commissioner's duty to collect the highest net revenue over time" — a discretionary call distinct from both the hardship and emergency-event grounds.

One genuinely counter-intuitive detail worth knowing if relief combines an arrangement with a write-off: "When relief is provided by way of a combination of an instalment arrangement and write off, the Commissioner will write off the agreed amount at the beginning of the instalment arrangement" — not as a reward once you've successfully completed the repayment term. If a combined relief package is offered, the write-off portion lands upfront.

Why a lender reads "arrangement in place" completely differently from bare arrears

This is where credit assessment logic, not tax law, does the explaining. A credit assessor isn't looking for a business with zero debt — it's looking for evidence that a business's obligations are known, sized and controlled. Unaddressed tax arrears fails that test on every count: the amount can keep growing, Inland Revenue can escalate to further collection action if nothing is agreed, and there's no defined schedule a lender can weigh against the business's cash flow. It reads as an open liability with real, unpriced downside risk.

An arrangement changes that completely. Once it's agreed, you have a fixed frequency, a fixed instalment amount and a defined start date — the same shape of information a lender already collects for every other creditor and repayment obligation on a file. It's something that can actually be built into a serviceability calculation, rather than sitting as an unknown that a credit assessor has to discount for or decline around. There's a second signal in it too: a business that identified a problem with its largest, least negotiable creditor and formally negotiated a fix, rather than letting it drift, is demonstrating exactly the kind of financial discipline a lender is trying to find evidence of in the first place.

The order to do this in

Sequencing matters more than most businesses realise when tax arrears and a finance application are both in play.

1. Get the arrangement formally agreed with Inland Revenue first — not an informal payment habit, an actual confirmed arrangement with a set frequency, amount and start date.
2. Have the confirmed schedule ready to show a lender as a defined, already-serviced obligation, rather than something still being sorted out in the background.
3. Build the confirmed instalment amount into your own cash flow forecast before you present it. Standard lending-readiness guidance already expects a cash flow forecast, financial records and a business plan as part of any application, and specifically flags affordability during slow months and at tax time as something worth stress-testing in advance — an unaddressed IRD debt is exactly the kind of thing that forecast needs to already account for.
4. Apply once the arrangement is confirmed and reflected in your numbers — not while the arrears are still sitting unresolved and the shape of the obligation is still unclear even to you.

Doing it in this order means a lender is assessing a business that has already dealt with the problem, rather than a business that's hoping the problem won't come up.

A few edge cases worth knowing

An arrangement is meant to run "as short as possible, but not so short as to put the taxpayer into serious hardship" — it's not designed to be dragged out longer than necessary, but it's also not meant to be set at a level that can't realistically be sustained. Separately, Inland Revenue can permanently write off very small debts — "the balance of the tax payable is $20 or less" — and must write off genuinely unrecoverable amounts, with no discretion involved, where a taxpayer has been made bankrupt, been liquidated, or had their estate distributed.

If arrears include child support debt, that has to be sorted separately by messaging or calling Inland Revenue directly — it isn't folded into a standard tax instalment arrangement. Student loan debt and Working for Families overpayments carry their own separate considerations too. If a director's personal tax position is tangled up alongside the company's, it's worth untangling which debt sits where before assuming one arrangement covers everything.

Frequently Asked Questions

Does an instalment arrangement stop interest charging altogether? No. Use-of-money interest keeps accruing on the overdue amount for as long as it's outstanding, and it's built into your instalment amounts rather than paused. What an arrangement reduces is the penalties you end up paying, not the interest.

Can Inland Revenue refuse to give me an arrangement? Yes. Entering into an instalment arrangement is a discretion of the Commissioner under the Tax Administration Act, not an automatic entitlement once you apply — Inland Revenue can decline, or offer a different combination of relief than what was requested.

I'm already paying Inland Revenue something every week — do I still need to formally apply? Yes. Paying in regular instalments without a formally agreed arrangement in place still risks the full rate of penalties and interest. The agreement itself is what changes your position, not simply the fact that money is moving toward the debt.

Will having an arrangement in place actually help my finance application? It changes what a credit assessor is looking at. Unaddressed arrears is an open-ended, unpredictable liability; a confirmed arrangement is a defined, scheduled obligation with a known amount and frequency — the kind of thing that can be built into a serviceability assessment rather than treated as an unknown risk.

Can the interest itself be written off? Only through specific, separate relief grounds — a serious hardship write-off (which is built around a natural person taxpayer, a narrower door for a limited company), a declared emergency event under an Order in Council, or where remission is consistent with the Commissioner's duty to collect the highest net revenue over time. None of these happen automatically just because an instalment arrangement is in place.

Deplexifi works from the credit team's side of the desk across New Zealand, Australia and the UK, and can tell you exactly how a specific IRD position will read on a finance application before you apply anywhere.

Assuming informal, ad hoc payments toward IRD arrears give the same protection as a formally agreed instalment arrangement — they don't, and the business can still be charged full penalties and interest without one.

Nothing here is regulated financial advice. Deplexifi arranges commercial finance for businesses — this article describes general lending practice and the published position of the sources listed below, not a recommendation for any individual business.