How businesses fall behind
Falling behind on tax returns is common and rarely deliberate. It usually starts with a cash squeeze: the accountant’s invoice goes unpaid, work stops, a return is missed, then another. Letters from IRD pile up. The owner is busy keeping the business alive, and the paperwork feels like the least urgent problem, until it becomes the most urgent one.
Meanwhile, the bank wants accounts before it’ll lend, and IRD may have issued default assessments based on estimates.
Step 1: find out exactly what’s overdue
Log in to myIR and list every outstanding return by tax type and period:
- GST returns
- Employment information and PAYE
- Income tax returns (IR3 for individuals, IR4 for companies, IR6 for trusts, IR7 for partnerships)
- Provisional tax
Write it down in a table. It’s often less overwhelming once it’s on one page.
Step 2: prioritise
| Priority | Returns | Why |
|---|---|---|
| 1 | Employment information / PAYE | Employee money; IRD pursues hardest; monthly penalties can apply |
| 2 | GST | Customer money; large debt category for IRD |
| 3 | Most recent income tax year | Needed for lending and to update provisional tax |
| 4 | Earlier income tax years | Clears default assessments and completes the record |
Step 3: gather records
You need less than you might think to start:
- business bank statements for every period;
- sales invoices and receipts;
- supplier bills and expense receipts;
- payroll records;
- loan and asset finance statements.
Most accounting software can pull in historical bank feeds. Even if your records are patchy, bank statements are the backbone of reconstructing a year.
Step 4: engage an accountant for catch-up work
Some accountants specialise in catch-up work. Be upfront about how far behind you are, and ask:
- what it’ll cost and how the fee is structured;
- how long it’ll take;
- which returns they’ll do first;
- whether they’ll talk to IRD on your behalf.
If cost is the obstacle, it’s reasonable to include the accountant’s fee in a funding plan. It’s one of the best-value things a business in this position can pay for.
Step 5: tell IRD
IRD’s guidance is consistent: contact them. Tell them you’re catching up, what the timeframe is, and who your accountant is. It won’t erase penalties, but it changes the tone of the relationship and can reduce the risk of escalation while the work happens.
Default assessments
When returns aren’t filed, IRD can issue a default assessment, its own estimate of the tax you owe. These estimates can be higher than your real liability. Filing the actual return generally replaces the default assessment with the real figure, although there are time limits and processes to follow, so let your accountant handle it.
This matters for funding. If you’re borrowing to pay IRD, it’s usually better to borrow against the real figure than an inflated estimate.
Penalties to expect
- Late filing penalties are fixed amounts. For income tax, IRD charges $50, $250 or $500 depending on net income; for GST, $50 or $250 depending on the accounting basis; for employment information, $250.
- Late payment penalties and interest apply to tax that’s unpaid, and grow over time.
IRD can remit some penalties in certain circumstances; ask your accountant whether it’s worth applying.
Funding while you catch up
Here’s the good news for business owners who need money now. Property-secured business loans through our lending partners don’t need financials or tax returns for the initial assessment. The lender looks at the property, what’s owing on it and the plan. That means you can:
- find out whether funding is possible before the catch-up work is finished;
- use the loan to pay IRD arrears, the accountant, and pressing creditors;
- keep the business trading while the returns get done.
Loans range from $20,000 to $1m as a first or second mortgage over New Zealand property. See business loans when you’re behind on tax returns.
Staying caught up
Once you’re current:
- Use accounting software with bank feeds, reconciled weekly.
- Put tax money aside in a separate account each time you’re paid.
- Diarise every due date.
- Keep your accountant engaged with a regular fee rather than a year-end scramble.
If you’re behind and under pressure, start an enquiry. A lending specialist can tell you what’s possible without waiting for the paperwork.