By Matt Rama, TMNZ Chief Commercial Officer, Tax Lawyer and Chartered Accountant.
Inland Revenue (IRD) is intensifying its focus on tax compliance, after a few years of leniency to account for the impact of COVID on businesses.
With an extra $116 million in funding, Inland Revenue is stepping up its focus on compliance and auditing tax paying businesses to make sure everyone is “Getting it Right” and is up to date on their tax obligations. IRD expects to recover around $800 million in unpaid tax over the next four years.
Recent media reports that IRD inspectors are making unannounced visits to businesses to review payroll and GST records are also correct. While the so-called hidden cash economy is a target, all businesses need to pay heed to the crackdown on compliance and the technical application of tax rules and regulations.
The importance of voluntary disclosure
Instead of waiting for an unexpected audit, businesses should proactively review their tax compliance. Consulting a tax advisor and making a voluntary disclosure can be beneficial, as IRD offers leniency in penalties for those who come forward.
Shortfall penalties, which can range from 20% for minor mistakes to 150% for tax evasion, may be reduced or waived entirely for voluntary disclosures. A voluntary disclosure takes a lot of heat out of the situation. In contrast, if IRD discovers non-compliance through an audit, businesses could face severe financial penalties or even legal consequences, including imprisonment for serious tax evasion cases.
IRD’s compliance efforts and liquidation trends
Post-COVID, IRD initially adopted a more relaxed approach but has now increased its enforcement. Historically, good businesses struggling due to temporary economic hardship may qualify for instalment plans, but IRD is also targeting “zombie companies” that may have survived the COVID period with government assistance but failed to maintain proper tax practices and may not be viable or sustainable going forward. These businesses may face liquidation to prevent further financial damage.
The number of firms put into liquidation by the IRD has increased 56% to 849 year to date in 2025, up from 549 for the same period in 2024.
From my perspective, putting a company into liquidation is often the right thing to do. An early liquidation due to unpaid taxes and virtual insolvency is better than letting a failing business carry on, doing more financial damage to staff, customers and suppliers.
Inland Revenue appears to be focused on payroll tax compliance, GST, Non-Resident Withholding Tax (NRWT) obligations and industries with a high risk of underreporting income.
Payroll and GST compliance is a particular focus as these are ‘pass-through’ taxes where the business has no right to hold onto the funds. IRD takes a dim view of businesses that knowingly have a GST or payroll liability as these are technically and legally not theirs to keep . That doesn’t mean you shouldn’t pay or delay paying company income tax, but for GST, you’ve already collected the tax so you should have the funds to pay IRD and for PAYE, there are much harsher penalties.
The area of NRWT impacts fewer taxpayers but is also where IRD is finding substantial discrepancies. In a nutshell, NRWT applies to businesses that have borrowed from offshore lenders and are making interest payments to these foreign lenders. These payments generally carry a 15% (or possibly a reduced rate due to treaty relief) withholding tax to IRD. NRWT (at different rates) can also apply to dividends paid to overseas shareholders. Not filing a NRWT return is, let’s just say, problematic for the local borrower.
Inland Revenue is making changes to legislation to help get some of these businesses back on track where they have borrowed from unrelated overseas lenders by allowing them to retrospectively register for ‘Approved Issuer Levy’ which allows the NZ business paying the interest to effectively pay a lower rate.
Take action now
To avoid penalties and ensure compliance, businesses should:
- Conduct a thorough review of all tax obligations.
- Consult with your tax advisor or accountant.
- Make a voluntary disclosure if necessary.
Another feature of the current crackdown is the timeframe. In the past IRD may have only cast back a few years, but we are seeing reassessments going back to 2013 or even 2010 in some cases.
Businesses come to us in shock and say they have big back taxes to pay, plus IRD interest and penalties.
If you have funds and can pay the old tax, plus interest and penalties, that’s ok. But for those that don’t have the funds or want a cheaper option, the best method is to use the services of an IRD-approved tax pool, like TMNZ.
These are funds already paid to IRD for each tax payment date going back, in our case, to 2008. These tax payments are available to businesses to purchase from TMNZ at a significant discount to the IRD penalties and interest.
Any business, providing there is no deliberate tax evasion, can access tax pools. Even companies that owe NRWT and haven’t filed a previous return may be able to use tax pools to pay owed NRWT – an application for IRD discretion to permit the use of tax pooling can be made in the case of a voluntary disclosure –. In fact, you can use TMNZ to fix your reassessed tax for any tax type not just income tax.
How does it work? A business buys backdated tax from the tax pool and instead of paying the IRD interest rate it pays a rate that is always lower than the IRD interest rate. Late payment penalties and the use of money interest will all reverse out if you buy the backdated tax from the pool and get it transferred to your IRD tax account within the stipulated timeframes, which is within 60 days after IRD issues you the reassessment notice (this date is shown on the reassessment notice).
I have been asked that if Inland Revenue is expecting $800 million of reassessments, do you have enough tax payments to cover all of that? Frankly, across all tax pools there is not $800 million available for reassessments. There’s more than enough for current periods (tax years in which tax returns are still able to be filed), because the amount of tax payments steps up exponentially (like in the billions). But because there’s some risk sitting on unrequired funds we don’t hold infinite amounts of tax in those prior periods. It is first come, first served. It’s like land. There’s a limited supply.
As there are people who are proactive, make voluntary disclosures and get the backdated tax first, there’s less for the next person to come along who might get audited by Inland Revenue in two years’ time.
Being proactive can prevent financial and legal repercussions while demonstrating good faith to tax authorities. Stay compliant and avoid the risk of unexpected audits.
This story was published by The Post in March 2025.
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