Why GST and PAYE get special attention
GST is money you collected from customers on IRD’s behalf. PAYE, KiwiSaver deductions and other employer deductions are money taken from your employees’ pay. When a business doesn’t pay them over, IRD regards the business as using money that belongs to someone else, and it pursues these debts accordingly.
The numbers show how common the problem has become. Inland Revenue’s 2025 annual report records $3.3 billion of overdue GST and $2.0 billion of overdue employer activity debt at 30 June 2025, with employer debt up 34 percent in a year.
Stage 1: penalties and interest begin
The day after a due date passes without payment, the debt starts growing.
| Charge | How it works |
|---|---|
| Initial late payment penalty | 1 percent the day after the due date |
| Further late payment penalty | 4 percent on any unpaid tax and penalty at the end of the seventh day |
| Monthly penalty | 1 percent each month for some tax types, such as employer deductions; not GST or income tax |
| Interest | Charged on overdue tax for each day it remains unpaid |
| Late filing penalties | For example $50 or $250 for a late GST return depending on accounting basis; $250 for late employment information |
Figures are from IRD’s late payment penalties and late filing penalties guidance. First-time late payers may get a grace period.
Stage 2: contact
IRD writes, emails, texts and calls. This is the stage where engaging makes the biggest difference. IRD’s consistent message is to contact them before a payment is missed if you know it will be. Options at this stage include:
- paying in full;
- setting up an instalment arrangement;
- asking about remission of penalties in some circumstances.
Stage 3: deduction notices
If contact doesn’t resolve the debt, IRD can issue deduction notices under section 157 of the Tax Administration Act 1994. These require a third party to pay money to IRD instead of to you:
- your bank, which may take funds from your account;
- your customers, who may be told to pay what they owe you directly to IRD.
IRD reported issuing 19 percent more deduction notices in 2024–25 than the year before. For a business, the effect is immediate: cash you were counting on for wages or suppliers goes to IRD instead.
Stage 4: statutory demand or liquidation proceedings
For companies that don’t engage or don’t keep arrangements, IRD can serve a statutory demand or apply to the High Court to put the company into liquidation. In 2024–25 IRD referred 650 cases to court for liquidation, a 49 percent increase. For individuals and sole traders, the equivalent path can lead to bankruptcy.
See what happens when IRD issues a liquidation proceeding and our statutory demand timeline.
Where you can step in
| Stage | Best move |
|---|---|
| Before the due date | Tell IRD if you’ll be short; pay what you can |
| Penalties and interest building | Arrange instalments or pay in full quickly |
| Contact from IRD | Respond; propose a realistic plan; keep current returns filed |
| Deduction notice issued | Act urgently; paying the debt removes the need for it |
| Statutory demand or court papers | Legal advice plus funding, immediately |
Staying current matters most
Whatever you do about the arrears, keep filing and paying current GST and PAYE on time. IRD looks hardest at businesses that are adding new debt while old debt remains. A business that’s current on new obligations and dealing with old ones has far more room.
Practical habits:
- Separate tax money into its own bank account every time you’re paid or run payroll.
- File on time even if you can’t pay in full.
- Forecast tax dates in a 13-week cash flow forecast.
Paying the arrears out
When arrears are large, or IRD has already issued deduction notices, paying in full is often the cleanest way to stop the escalation. A property-secured business loan from $20,000 to $1m can pay IRD directly at settlement, with no financials needed for the initial assessment. For smaller arrears, an unsecured loan based on turnover may help if you’ve been trading six months or more. See funding for overdue GST and PAYE or start an enquiry.