IRD Instalment Arrangement Calculator

This calculator prices what it actually costs to pay a tax debt to Inland Revenue over time rather than in full. Two separate charges apply and they behave differently. Use of money interest accrues on whatever remains outstanding, at 8.97% a year compounding daily, so it falls as you pay the balance down. Late payment penalties are one-off hits on the original amount: 1% the day after the due date and a further 4% if it is still unpaid a week later. Whether you incur those penalties at all depends on when you make contact, which is why this page treats arranging before the due date as a separate scenario rather than a footnote. The tax type matters too, because the 1% incremental monthly penalty was removed for income tax, GST and Working for Families overpayments from 1 April 2017 but still applies to some other tax types, and where it does apply it can dwarf the interest. Finally, an Inland Revenue arrangement is not the only way to fund a tax debt, so the page compares it directly against tax pooling through an approved intermediary and against a business overdraft at rates you enter yourself. One of those is usually cheaper and it is not always the one people expect. Figures are indicative planning estimates and not tax advice.

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Two Different Charges, Behaving Differently

A tax debt paid late attracts two things and it helps to keep them separate.

Late payment penalties are one-off charges on the original amount. There is 1% the day after the due date, and a further 4% if the tax is still unpaid seven days after the due date. They do not recur, they are calculated on the tax rather than on the growing balance, and crucially they can often be avoided altogether by making contact before the due date.

Use of money interest is the ongoing charge. It runs at 8.97% a year from 16 January 2026, compounds daily, and applies to whatever is still outstanding. Because it works on the declining balance, paying faster genuinely reduces it, unlike the penalties which are already fixed by the time you start.

There used to be a third charge, a 1% incremental penalty applied every month, and it was brutal because it compounded on top of the interest. It was removed from 1 April 2017 for income tax, provisional tax, GST and Working for Families overpayments, which covers most business debts. It survives for some other tax types, and where it applies it can cost more than the interest.

Worked Example: $45,000 Over 21 Months

Take the defaults. A $45,000.00 income tax debt, with the arrangement agreed after the due date, paying $2,500.00 a month.

Because it is after the due date, the initial penalties apply: $450.00 at 1% and $1,800.00 at 4%, so $2,250.00 is added before anything else happens. The balance starts at $47,250.00.

Interest accrues at 8.97% compounding daily on the reducing balance while the $2,500.00 monthly payments run it down. It takes 21 payments to clear and generates $3,897.63 of interest.

Total repaid is $51,147.63. The arrangement has cost $6,147.63 more than paying the tax on time would have, which is 13.7% of the original debt.

The Cheapest Thing You Can Do Is Ring Earlier

Run the same debt with the arrangement agreed before the due date and the penalties disappear. The balance starts at $45,000.00 instead of $47,250.00, it clears in 20 payments rather than 21, and the interest falls to $3,526.32 because there was less to charge interest on.

Total repaid becomes $48,526.32, a saving of $2,621.32.

Nothing about the business changed. No extra money was found and no better rate was negotiated. The entire saving comes from making contact before the date rather than after it. If you can see a tax payment coming that you will not be able to meet, that phone call is the highest-return thing on this page by a wide margin.

Inland Revenue Is Not Always The Dearest Lender

There is a common assumption that owing money to Inland Revenue is the worst possible position and that any bank borrowing would be better. On current rates that is often wrong.

Funding the same $47,250.00 balance on a 12% business overdraft costs $5,413.99 of interest, against $3,897.63 from Inland Revenue. Borrowing to clear the tax would cost $1,516.36 more. At 8.97%, Inland Revenue is cheaper than most unsecured business credit.

What an overdraft does buy is a clean compliance record and no exposure to a cancelled arrangement, which has genuine value if you are about to apply for finance or tender for work where tax compliance is checked. That is a real consideration, but it should be a deliberate trade rather than an assumption that the bank must be cheaper.

Tax pooling frequently is cheaper. Approved intermediaries hold tax that other taxpayers paid on time and on-sell it, and their finance rates commonly sit below the use of money interest rate. At 7.5% the same balance costs $3,200.60 of interest, saving $697.03 against Inland Revenue. Tax pooling is generally available for provisional and terminal income tax rather than every tax type, so check eligibility before counting on it. Our Tax Pooling Benefit Calculator goes into that in more depth.

Propose An Instalment You Can Actually Meet

The temptation when negotiating is to offer the largest instalment that looks affordable on a good month, because it clears the debt faster and looks more cooperative. That is a mistake.

If an arrangement is not met, Inland Revenue can cancel it, and the full remaining balance becomes payable immediately with recovery action available. A smaller arrangement that is met every month is worth considerably more than a larger one that collapses in month four, both financially and in terms of the relationship.

Model the payment against a genuinely poor month rather than an average one. If things improve you can always pay extra, and because interest runs on the declining balance, every additional payment reduces the interest immediately.

What This Page Does Not Model

Inland Revenue has discretion to remit penalties and use of money interest in defined circumstances, including where a failure to pay arose from an event beyond your control and in cases of serious hardship. That is not modelled here because it depends entirely on your circumstances and compliance history, but it is worth asking about rather than assuming the charges are immovable.

Nor does the page model what happens if further tax falls due while the arrangement is running, which is the most common way arrangements fail. An arrangement covering last year's terminal tax does not pause this year's provisional tax. If the underlying problem is that the business is not setting tax aside as it earns, an instalment arrangement treats the symptom. Our Provisional Tax Calculator and Small Business Cashflow Forecast Calculator deal with the cause.

Related NZ Tax and Business Calculators

• Use of Money Interest Calculator: UOMI on its own, for a single underpayment or overpayment.
• Tax Pooling Benefit Calculator: whether pooling beats Inland Revenue on your particular debt.
• Provisional Tax Calculator: get the instalments right so the debt does not recur.
• Business Loan Repayment Calculator: price bank finance properly before assuming it is cheaper.
• NZ UOMI Rates: the current and historic use of money interest rates.
• How Much Should I Pay Myself?: the background to this calculation.