Can't Pay Your Tax Bill? How IRD Payment Plans Work in NZ

Getting a tax bill you can't pay in full is stressful. But ignoring it is the worst thing you can do. IRD has a formal process for exactly this situation — an instalment arrangement — and applying early puts you in a much better position than waiting for IRD to chase you.

An instalment arrangement (sometimes called a payment plan) is a formal agreement with IRD to pay your tax debt over time in regular instalments rather than in one lump sum.

IRD will generally agree to an instalment arrangement if:

• You genuinely cannot pay the full amount now
• You can demonstrate you will be able to pay over the agreed period
• You are up to date with filing all your returns (even if you can't pay)
• You are not trying to avoid paying — just managing cashflow

This is the key thing to understand: an instalment arrangement does not freeze your debt. Use-of-money interest (UOMI) continues to accrue on the unpaid balance at IRD's current rate (around 10.91% per annum as at 2024 — check ird.govt.nz for the current rate).

This means the sooner you pay off the debt, the less interest you pay. If you can make larger payments or pay off early, do so.

Late payment penalties may also apply if you did not pay on time originally, though IRD can sometimes remit these if you have a good compliance history and engage proactively.

Online (myIR):

1. Log in to myIR at ird.govt.nz
2. Go to the account with the debt
3. Select "I want to..." → "Set up a payment plan"
4. Enter the amount you can pay per instalment and the frequency
5. IRD will assess and confirm

By phone: Call IRD on 0800 227 774. Have your IRD number, the amount owed, and a realistic repayment proposal ready.

Through your accountant: Your accountant can contact IRD on your behalf and negotiate the arrangement. This is often the best option if the debt is large or the situation is complex.

When assessing your application, IRD considers:

• Your income and expenses — can you genuinely afford the proposed instalments?
• Your assets — do you have assets you could sell to pay the debt?
• Your compliance history — have you filed returns on time? Have you had payment issues before?
• The proposed repayment period — IRD generally prefers shorter arrangements (under 12 months) but will consider longer periods in genuine hardship cases

Be realistic. Proposing instalments you cannot sustain will result in the arrangement defaulting, which puts you in a worse position.

If you miss a payment under your instalment arrangement, IRD can cancel the arrangement and the full balance becomes immediately due. IRD can then:

• Issue a deduction notice to your bank (direct debit from your account)
• Issue a deduction notice to your employer (deduct from your wages)
• Register a charging order over your property
• Refer the debt to a debt collection agency
• In serious cases, commence bankruptcy or liquidation proceedings

This is why it is critical to only agree to instalments you can actually make. If your circumstances change, contact IRD immediately to renegotiate — do not just stop paying.

If you are in genuine financial hardship — unable to meet basic living expenses — you may be able to apply for a write-off or remission of some or all of the debt. This is a higher bar than a standard instalment arrangement and requires detailed financial disclosure, but it is available in genuine cases.

If you filed your return but did not pay on time, you will have incurred late payment penalties:

• 1% penalty on the day after the due date
• 4% penalty if still unpaid after 7 days
• Further incremental penalties if the debt remains unpaid

IRD has discretion to remit penalties (but not interest) if you have a good compliance history and engage proactively. The best way to get penalties remitted is to contact IRD before they contact you, file all outstanding returns, and set up a payment arrangement.

IRD has significant powers to collect unpaid tax and they will use them if you do not engage. The interest and penalties that accumulate on an ignored debt can quickly make a manageable problem unmanageable.

If you receive a tax bill you cannot pay:

1. File your return on time even if you cannot pay (late filing penalties are separate from late payment penalties)
2. Contact IRD or your accountant immediately
3. Apply for an instalment arrangement with a realistic proposal
4. Keep making payments and communicate if your situation changes

If you are dealing with a tax debt and are not sure what to do, contact Eastmure & Associates. We deal with IRD regularly and can help you negotiate an arrangement and get your compliance back on track.