A big tax bill has a way of arriving at the worst possible moment — right after a slow quarter, right before a busy season when you need stock. The instinct is to empty the account and pay it. Sometimes that’s right. Often it leaves the business with nothing to trade on for the next month.
There are better ways to handle it. Here are the three main options, how they compare, and how to choose.
Option 1: An Inland Revenue instalment arrangement
Inland Revenue lets businesses pay tax debt over time through an instalment arrangement. You can request one in myIR by choosing the payment amount, method and frequency that you can afford — weekly, fortnightly or monthly.
What to know:
- Interest still applies. IRD charges interest on overdue amounts, and it’s built into your instalments.
- You must keep filing. Current returns need to be filed and new tax paid on time while the arrangement runs.
- It protects you from escalation. Keeping to the plan may stop IRD taking further collection action.
- It’s visible. A bank or tender panel may ask whether you have tax arrangements in place.
For a modest debt that you can clear within a few months from normal trading, an arrangement is often the cleanest answer. Talk to IRD early — before the due date if you can.
Option 2: Tax pooling for provisional tax
If the problem is provisional tax timing rather than a debt you can’t pay, tax pooling is worth a conversation with your accountant. Registered intermediaries hold funds in accounts with Inland Revenue, and IRD treats a payment as made on the date it went into the pool. That gives flexibility on when you actually fund the tax and can reduce use-of-money interest. It doesn’t help with GST or PAYE, and it isn’t a way to avoid paying — it’s a timing tool.
Option 3: Pay IRD in full with a business loan
A business loan clears the debt with Inland Revenue in one hit. You then repay the lender on a schedule designed around your cash flow.
This tends to make sense when:
- The debt is large — tens or hundreds of thousands across GST, PAYE and income tax.
- Penalties are stacking up. IRD applies a late payment penalty the day after the due date and another seven days later, and PAYE and other employer deductions attract heavier ongoing penalties.
- You need a clean IRD record to refinance with a bank, qualify for a tender, or sell the business.
- You’re juggling several creditors and want one lender and one repayment.
Property-secured business loans are particularly suited to this: IRD debt can be refinanced or paid out, bad credit and arrears are considered case by case, and no financials are needed for the initial assessment. Loans run from $20,000 to $1m. For smaller bills, an unsecured loan sized to your turnover may be enough.
How do the options compare?
| IRD instalment arrangement | Business loan | |
|---|---|---|
| Who you owe | Inland Revenue | A lender; IRD is paid in full |
| Speed to set up | Can be quick in myIR for straightforward debts | Days, depending on security and documents |
| Cost | IRD interest on overdue amounts | Priced on your individual situation |
| Effect on IRD record | Debt remains until repaid | Debt cleared |
| Best for | Smaller debts, clear short-term repayment | Larger debts, multiple tax types, refinance plans |
How do I stop this happening next year?
The real fix is setting aside tax as you earn. A few habits that work:
- Open a separate “tax” account and sweep GST and a percentage of profit into it every time you’re paid.
- Diary every GST and provisional tax date for the year. For a 31 March balance date, standard provisional tax instalments fall on 28 August, 15 January and 7 May.
- Ask your accountant whether the ratio option or AIM would spread provisional tax more evenly with your GST cycle.
Our guide to GST and provisional tax cash planning lays out the full calendar.
Should I call IRD or a lender first?
If the bill isn’t due yet and it’s manageable, talk to your accountant and IRD first. If it’s already overdue, large, or mixed up with other cash pressures, ring the Hotline. A specialist will compare the loan route against an arrangement honestly — we’d rather you take the option that works than a loan you don’t need. Request a call back if that’s easier.