Missed Your Tax Payment? 3 Ways TMNZ Helps Avoid IRD Penalties
If you’ve just realised you’ve missed your 15 January provisional tax payment, or you’re staring down a payment you simply can’t make right now, take a breath. You’re not alone, and there are options that can help you avoid penalties and get back on track.
At TMNZ, we work with thousands of New Zealand businesses every year who face the same challenge: provisional tax payments that don’t always line up with cashflow realities. The good news? TMNZ offers practical solutions that can save you money and give you breathing room.
What Happens if You Miss a Tax Payment?
Missing a provisional tax payment in New Zealand triggers a cascade of penalties and interest charges from IRD. Understanding what’s at stake can help you take action before costs spiral.
IRD Late Payment Penalties
IRD applies penalties in stages:
- 1% penalty – charged the day after the due date
- 4% penalty – charged 7 days after the due date (on top of the 1%)
- Use of Money Interest (UOMI) – currently 8.97% per annum (as at 16 January 2026), calculated daily from the day after the due date until paid in full
For example, if you owe $20,000 and miss the due date by two months, you could face approximately $1,000 in penalties alone—before UOMI is added.
First-Time Late Payers: Grace Period
If it’s your first late payment in a two-year period, IRD may offer you a grace period before charging penalties. They’ll notify you of this grace period and your new due date. However, if you don’t pay by the new due date, penalties are charged from the original due date. Don’t rely on this—it’s not guaranteed and only applies once every two years.
Understanding Your Options
How to Check Your Tax Position in myIR
Before you act, check where you stand:
- Log into myIR at ird.govt.nz
- Select your Income Tax account
- Select ‘View’ provisional tax to see your due dates and amounts owing
- Check your ‘Income summary’ for a breakdown of income sources
Your myIR account shows your provisional tax due dates, amounts paid, and any outstanding balances—giving you a clear picture of your obligations.
Comparing Your Options: IRD vs TMNZ vs Bank Finance
IRD Instalment Arrangement
- Set up through myIR to pay debt in weekly, fortnightly, or monthly instalments
- UOMI continues to accrue on the outstanding balance
- Some late payment penalties may be reduced if you set up before the due date
- Your payment is still recorded as ‘late’ with IRD
TMNZ
- IRD treats your tax as paid on time when transferred from the pool
- Eliminates late payment penalties entirely
- Interest rates significantly lower than IRD’s UOMI
- Flexible payment options—pay in instalments, defer, or access deposited funds
- You have 75 days from your terminal tax date to use tax pooling for the tax year
Bank Finance/Overdraft
- May require security or affect your credit facilities
- Interest rates often higher than tax pooling
- Uses up banking headroom you may need for business operations
- Doesn’t eliminate IRD penalties—you’re still paying late
The 75-Day Rule for Tax Pooling
A critical deadline to know: you have 75 days from your terminal tax date to use tax pooling to satisfy your provisional or terminal tax liabilities at backdated effective dates. For a standard 31 March balance date taxpayer with a tax agent, your terminal tax date is typically 7 April—giving you until late June to settle tax pooling for that tax year. Act early to ensure you don’t miss this window.
Let’s look at how three different businesses used TMNZ to navigate missed provisional tax payments.
Scenario 1: The project-based business
Meet the team at Bayside Builders*
Bayside Builders is a residential construction company with several homes due for completion after the January provisional tax date. They knew they’d have the cash to pay tax once the properties were signed off and final payments came through, but they couldn’t tie up working capital in tax when they needed it to finish the builds.
January hit, and the 15th came and went. Materials, subcontractors, and wages had to come first.
How TMNZ helped:
Bayside Builders used TMNZ’s tax financing option to defer their provisional tax payment. This meant they could:
- access financing at rates lower than their bank
- preserve banking headroom for construction costs
- avoid IRD penalties and use of money interest (UOMI)
- repay the tax finance once properties settled and revenue came in.
The result: Bayside Builders maintained the capital they needed to complete their projects, avoided penalties, and kept their banking relationships intact, all while meeting their tax obligations.
Scenario 2: The unexpected cashflow crunch
Meet the Andersons from Clearwater Station*
The Andersons run a sheep and beef farm in the South Island. By January, lamb sales are well underway, and cash is starting to come in. But this year, the farm was still recovering from a tough winter. The cost of carrying stock through the cold months—supplementary feed, animal health, and repairs—had stretched their reserves. When an unexpected dry spell hit and they needed to buy in more feed, the business account couldn’t stretch to cover both farm costs and the 15 January provisional tax payment.
But now they needed short-term access to those funds to keep the farm running.
How TMNZ helped:
Because the Andersons had deposited their tax into TMNZ’s pool, they were able to use the drawdown facility to:
- access their deposited funds for a short period
- bridge the immediate cashflow gap caused by the drought
- repay the funds once livestock sales came through
- avoid IRD penalties and maintain their tax position.
The result: The Andersons got through the drought without compromising their tax compliance or incurring penalties, and their funds were back in place once sales resumed.
Scenario 3: The seasonal business
Meet Jo from Coastal Homewares*
Jo runs a homeware and giftstore that does about 40% of its annual revenue in the lead-up to Christmas. By January, the shop is quiet, but the invoices from stocking up for the holiday rush—placed on 30 and 60-day terms—are all landing at once. Between paying suppliers, clearing staff holiday pay, and managing post-Christmas returns, cash is tight. Missing the 15 January provisional tax payment wasn’t the plan, but it was the reality.
How TMNZ helped:
Rather than facing IRD’s late payment penalties and UOMI, Jo purchased tax through TMNZ’s pool and set up a payment plan that matched her cashflow. This allowed her to:
- pay in flexible instalments spread over several months
- avoid late payment penalties entirely
- pay interest at rates lower than IRD’s UOMI debit rate
- get back on her feet without draining the business account
Because TMNZ had already made the payment to IRD on the original due date, IRD treated Jo’s tax as paid on time when it was transferred to her account.
The result: Jo kept her business running through the quiet months and avoided costly penalties, all while staying fully compliant.
Why This Matters
Missing a provisional tax payment doesn’t have to mean penalties, stress, or a hit to your reputation with IRD. TMNZ gives you options that work with your business reality, not against it.
Here’s what you need to know:
- Avoid penalties: When you purchase tax through TMNZ’s pool, IRD treats it as paid on time. That eliminates late payment penalties.
- Flexible payment options: Pay in instalments, defer to a future date, or access funds you’ve already deposited.
- Lower interest rates: TMNZ’s rates are lower than IRD’s UOMI debit rates and competitive with bank financing.
- Fast turnaround: We can often arrange solutions within days, not weeks.
Frequently Asked Questions
If you miss a provisional tax payment, IRD charges a 1% late payment penalty the day after the due date, followed by an additional 4% penalty seven days later. Use of money interest (UOMI) at 8.97% per annum also accrues daily until the debt is paid. These costs add up quickly, which is why taking action early is important.
Yes. Tax pooling allows you to purchase backdated tax credits that IRD treats as paid on the original due date. This eliminates late payment penalties entirely. TMNZ is an IRD-approved tax pooling intermediary that has helped thousands of New Zealand businesses avoid penalties since 2003.
You have 75 days from your terminal tax date to use tax pooling to cover missed provisional or terminal tax payments for that tax year. For most taxpayers with a 31 March balance date and a tax agent, the terminal tax date is 7 April—so you’d have until approximately late June. The sooner you act, the lower your interest costs.
Tax pooling is an IRD-approved system where provisional tax payments from multiple businesses are held in a pooled account. When one business overpays and another underpays, the overpayment can cover the shortfall. Because funds in the pool are date-stamped, purchasing tax from the pool means IRD treats your payment as made on the original due date—eliminating penalties and reducing interest costs.
Yes. TMNZ (Tax Management New Zealand) pioneered tax pooling in 2003 and is one of six registered tax pooling intermediaries approved by IRD. Tax pooling is fully compliant with New Zealand tax law and is used by thousands of businesses and accountants nationwide.
They’re separate charges. Late payment penalties are fixed percentages (1% immediately, then 4% after seven days) charged as a penalty for missing the due date. UOMI (use of money interest) is interest charged daily at 8.97% per annum on the outstanding tax balance until it’s paid. Both can apply simultaneously, making timely action crucial to minimising costs.
Ready to explore your options?
If you’ve missed your 15 January payment or you’re concerned about upcoming payments, our team can help you understand your options and put together a plan that works for your business. We’re here to make tax easier and help you stay in control of your cashflow, no matter what challenges come your way. Get in touch today.
*These scenarios are fictional examples created to demonstrate how tax payment solutions work to meet unique circumstances in a range of industries.
Tax Payment Trends for 2026: Supporting Business Growth Through Economic Recovery
Matt Edwards, Chief Executive Officer, TMNZ
As we move into 2026, New Zealand businesses are anticipating a turning point after navigating challenging economic conditions. Business confidence has surged to its highest level in nearly twelve years1, driven by aggressive central bank rate cuts and growing optimism about the recovery ahead. For business and tax advisors, this presents both opportunity and complexity.
At TMNZ, we’re seeing firsthand how evolving payment patterns are reshaping the way businesses manage their tax obligations, and we’re committed to supporting your clients’ growth throughout this pivotal year.
The Economic Landscape: Recovery with Caution
The New Zealand economy is projected to grow with real GDP expected to increase by 1.7% in 2025/26, rising to 3.4% in 2026/272, a welcome improvement after recent contraction. Business sentiment is notably strong, with manufacturers particularly optimistic about the year ahead.
However, the recovery is nuanced. While lower interest rates are providing relief to indebted businesses and the rural economy remains relatively robust, our urban centres continue to face headwinds. Unemployment is expected to peak around 5.5% in the March 2026 quarter, and inflation remains at the upper limit of the Reserve Bank’s target band. Core Crown tax revenue is forecast to rise as a share of GDP, from 27.3% in 2025/26 to 28.4% in 2029/303, largely driven by an improvement in the economy and the effect of wage growth moving people into higher tax bands. At TMNZ we have seen significant, double-digit year on year growth in tax deposits made by small and medium sized businesses, indicating that some businesses are expecting to be more profitable this year.
For advisors, this environment demands careful cashflow management. The gap between economic optimism and actual financial performance means that while businesses may be planning expansion, they’re also managing tighter margins and delayed investment decisions.
Emerging Tax Payment Trends
We’re observing several significant shifts in how advisors manage their clients’ tax obligations in 2026:
- Provisional tax calculation has become critical. In those industries that are struggling, many advisors are suggesting their clients to pay provisional tax based on actual cashflow rather than overpaying based on an uplift from the prior year liability.
- Tax pooling is gaining traction. More businesses are turning to tax pooling arrangements to manage provisional tax more efficiently, reducing the risk of underpayment penalties while avoiding the opportunity cost of overpayment. Tax advisors are increasingly encouraging their clients to pay their provisional tax through TMNZ. This trend reflects a more sophisticated approach to working capital management as businesses seek every advantage during the recovery phase.
- Tax payments are under scrutiny. With Inland Revenue’s increased focus on businesses with tax debt, advisors are setting up payment arrangements for provisional tax, while ensuring that clients’ GST and PAYE obligations are met by the due date.
How TMNZ’s Solutions Support Business Growth
At TMNZ, we recognise that effective tax payment management isn’t just about compliance – it’s about enabling growth for your clients. Our payment solutions are designed for the challenges businesses face in 2026:
- Flexible payment scheduling allows you to align your client’s tax payments with their actual cashflow patterns, particularly valuable when revenue remains uncertain. Rather than forcing provisional tax payments to fit rigid schedules, our payment solutions match to business rhythm.
- Integrated payment tracking provides real-time visibility across provisional tax obligations. For advisors managing multiple entities or complex group structures, this consolidated view eliminates the risk of missed deadlines and provides the data needed for strategic cashflow planning.
- Payment reliability matters more than ever. As your clients invest in growth initiatives, the last thing they need is a missed payment disrupting tax compliance or damaging their relationship with Inland Revenue.
Looking Ahead
The economic outlook for 2026 represents a genuine opportunity for New Zealand businesses. Capital investment is forecast to increase 6.1% in calendar 20264, its strongest pace of expansion since 2021. This is the environment where strategic tax payment management transforms from a compliance function into a growth enabler.
For advisors, the message is clear: businesses that can efficiently manage their tax obligations while preserving working capital for investment will be best positioned to capitalise on the recovery. At TMNZ, we’re committed to providing the payment tools that makes this possible.
As we navigate 2026 together, I encourage you to review your current tax payment processes. Are they supporting your clients’ growth objectives, or are they simply maintaining compliance? The difference matters, and TMNZ is here to help you bridge that gap.
1 New Zealand Institute of Economic Research (NZIER) Survey of Business Opinion, January 2026
2 New Zealand Treasury Half Year Economic and Fiscal Update 2025
3 New Zealand Treasury Half Year Economic and Fiscal Update 2025
4 BNZ Economic Forecast for 2026
Commissioner’s discretion for tax pooling
For many years, tax pooling legislation assumed that taxpayers would always file tax returns, and any errors or omitted tax would be dealt with for pooling under the “increased amount of tax”. In time Inland Revenue realised that many taxpayers, such as salary and wage earners, don’t have to file tax returns. But if they later identified that they had another type of taxable income (such as foreign trust income), they couldn’t use tax pooling to settle the liability as they hadn’t filed an original return.
Inland Revenue created the right for taxpayers to apply for Commissioner’s discretion to use tax pooling where a return for RWT or Income tax hadn’t been filed, and the taxpayer filed a voluntary disclosure which included the underpaid tax. But from 2009 until 2022, the discretion only covered these two tax types – RWT and income tax.
In 2022, Inland Revenue accepted that the discretion should be extended to other tax types. It is not uncommon to find taxpayers who had not been aware of a liability (often a withholding tax or FBT) and so had never filed returns for those taxes. Without the ability to use tax pooling, some chose not to report the errors to Inland Revenue, or to report them going forward, rather than rectifying the past. So Inland Revenue amended section RP 17B to allow the Commissioner’s discretion to be used for other tax types including ones we often get asked about such as GST, FBT, and RWT and NRWT. In 2025, AIL was added to the list of tax types.
The full list of tax types that can be used for Commissioner’s discretion is:
- ESCT
- FBT
- Further income tax
- GST
- Imputation penalty tax
- Income tax
- NRWT
- PAYE
- RSCT
- RWT
- AIL
It’s good to note the PIE tax is treated as income tax, and can be transferred to IRD as INC.
There are some criteria that determine whether a taxpayer can get Commissioner’s discretion. The most important of these is that Inland Revenue has to be satisfied that the taxpayer was not deliberately failing to comply with their tax obligations.
These are the rules for using tax pooling for a voluntary disclosure where no return has been filed:
- The voluntary disclosure must be filed within a reasonable time frame of identifying the error. What is a reasonable time frame? Inland Revenue considers it will be about 3 months.
- The taxpayer must notify Inland Revenue before they receive any notice of an audit by Inland Revenue.
- The Commissioner must be satisfied that the new liability was not caused because the taxpayer didn’t take reasonable care with their tax obligations.
Inland Revenue has set out their criteria for granting discretion in TIB Volume 34, Number 5 at page 33. Here is a summary of their discussion.
The relevant parts of the TIB state the following
The requirements to be met to be able to use tax pooling are:
- The person must make a voluntary disclosure of a “new liability”, not being a liability that arose from a return by the person, or an assessment of the person, made before Inland Revenue has made any contact with the person or their agent.
- The person must notify the Commissioner, which results in an assessment of, or obligation to pay, the new liability.
- The voluntary disclosure must be made within a reasonable time after the earliest time the person or their agent became aware of the new liability, and before the date of notification of the Commissioner or the person is notified of a pending tax audit or investigation or that a tax audit or investigation has started.
- The Commissioner must be satisfied that the new liability did not arise as a result of a choice by the person not to comply with the person’s obligations under the Inland Revenue Acts or as a result of a failure by the person to take reasonable care to comply with those obligations.
There are two aspects of these requirements that could create some uncertainty:
- the voluntary disclosure must be made “within a reasonable time” after the earliest time that the person or the person’s agent is aware of the person’s new liability, and
- the new liability must not arise as a result of a choice by the person not to comply with the person’s obligations under the Inland Revenue Acts or as a result of a failure by the person to take “reasonable care” to comply with those obligations.
Both these tests will be fact dependent, but some guidance is provided below.
Within a Reasonable Time
Generally, “within a reasonable time” will be within a period of less than three months. However, the circumstances of the specific taxpayer will also be considered. Inland Revenue considers the phrase means that provided the taxpayer applies at the earliest opportunity after they or their agent becomes aware of the liability, then the test will be met. There are limited situations where a request for relief outside this time frame may still have been made “within a reasonable time”. Ultimately it will depend on the circumstances of the particular case. However, the circumstances of the taxpayer would need to be such that they could not have reasonably advised Inland Revenue within three months. For example, sickness or injury that extended beyond the three-month period and made them unable to make a voluntary disclosure may still satisfy “within a reasonable time”.
This is yet to be determined and guidance around this will be issued but early indications are 4 weeks would be reasonable and 4 months is likely not to be. Discussions we’ve had with the Revenue indicate that you can file the voluntary disclosure without having quantified the error if you need more time to do so as it is the notification of the error within a reasonable time frame that is important. This will be useful where you may have identified a system error that means a return hasn’t been filed but you’re not yet sure how long the error has been occurring and therefore what the value of the error will be.
The new liability also cannot be as a result of a choice not to comply e.g., you deliberately chose not to file the return or from a lack of reasonable care to comply with your obligations.
If you’d like to know more, please contact our team of tax pooling specialists.
How to manage business cashflow over the seasonal period
Summer’s here. A time for family, friends, and well-earned downtime. But for many small and medium-sized Kiwi businesses, it’s also one of the toughest periods for cashflow. The challenge is heightened for many sectors that experience a slow period in January and February, while provisional tax and GST payments are due on 15 January for businesses with a 31 March balance date.
This year brings additional pressure with the 2025/2026 Christmas and New Year public holidays falling midweek on Wednesdays and Thursdays. This creates a fragmented two-week period where many businesses will close or operate at reduced capacity.
Let’s look at why Christmas creates cashflow challenges and what options can help you navigate this seasonal period more smoothly.
Why Christmas creates cashflow challenges for NZ businesses
The period after Christmas is traditionally slow. For sectors like hospitality or retail, there’s a surge in demand before Christmas that makes the January drop-off particularly harsh.
Additional pressures businesses can come under include:
- business closures or reduced capacity over the break – less income generated
- employee incentive schemes and bonuses paid before Christmas – draining cash reserves right before the quiet period
- reduced consumer spending in January and February – as consumers apply more caution after the holiday spending surge
- inventory tied up in stock – particularly challenging for retail businesses with cash locked in unsold summer ranges
- slower bank processing times – public holidays and weekends can delay payments arriving in your account
Together, these create what many business owners know as the “summer squeeze” on cashflow, with added pressure to cash reserves with the 15 January provisional tax deadline.
The 15 January provisional tax deadline
With these seasonal challenges, it’s no surprise many businesses struggle to manage cashflow and meet the 15 January provisional tax deadline.
Unfortunately, Inland Revenue doesn’t factor in these seasonal challenges. They’ll charge 3.27% late payment penalties and 9.89% use of money interest (UOMI) if tax isn’t received on the due date (rates as at May 2025).
Many businesses find this timing particularly challenging given the seasonal slowdown and reduced cash reserves after the holiday period.
Ways to manage your Christmas cashflow
So what are your best options?
Many businesses take a proactive approach to their Christmas cashflow. Here are a few key areas to consider:
Accounts receivable – review outstanding invoices before the holiday period and follow up with customers to improve collection timing. Early December works well to encourage payment before businesses close for the break.
Supplier relationships – if you have good trading relationships and have been a reliable payer, consider discussing your payment schedules with suppliers over the seasonal period.
Planning ahead – create a cashflow forecast covering the December to February period. This helps identify potential gaps in advance, including reduced trading days, holiday bonuses, and the 15 January tax payment.
Every business situation is different. It’s worth discussing your specific circumstances with your accountant or financial adviser.
A smarter way to manage tax payments
Looking at your provisional tax payment timing? TMNZ offers a smarter alternative.
Tax pooling through TMNZ is approved by Inland Revenue and trusted by New Zealand businesses. It lets you defer provisional tax payments to a time that suits you, without incurring late payment penalties and UOMI.
It’s more affordable than many traditional forms of finance, doesn’t affect your existing credit facilities, and requires no credit checks or security.
You only pay back what you actually owe. If your tax liability is less than expected, you don’t need to repay the full amount. And the finance arrangement can be easily extended.
How it works
Say you need to defer a $5,000 provisional tax payment for 6 months. You’d pay TMNZ a one-off, tax-deductible interest amount, and we’d arrange the $5,000 provisional tax payment on your behalf.
The interest amount is based on the tax amount financed and the deferral period. In this instance, it would be roughly $130.
The provisional tax payment is held in an IRD account administered by Guardian Trust. They instruct IRD to transfer the tax into your IRD account when you repay the $5,000 principal in 6 months.
IRD treats the $5,000 provisional tax as paid on time once the transfer is processed. It’s that simple.
Key benefits of tax pooling:
- IRD-approved
- doesn’t impact your existing credit facilities
- no security or credit checks required
- flexibility to adjust if you owe less tax than expected
Planning ahead for the summer period
The businesses that navigate Christmas cashflow most successfully? They start planning early. Consider reviewing your cashflow position in October or November, before the holiday rush begins. This gives you time to understand your position and explore options that work for you.
Your accountant can help you assess your specific situation and what approaches might work for you, including whether tax pooling could be the right solution for managing your 15 January provisional tax obligations.
Take control of your summer cashflow
Christmas doesn’t have to be stressful for your cashflow. With forward planning and the right solutions, you can navigate the seasonal challenges while keeping your business on track.
Ready to ease your seasonal cashflow pressures? Learn more.
Need to calculate your provisional tax? Check out our Calculating Provisional tax guide.
Five top tips for paying 28 August provisional tax
Are you due to pay 28 August provisional tax?
For most business taxpayers, your first instalment of provisional tax for the 2025 tax year is coming up. It’s important to pay what you owe on the due date. Inland Revenue won’t hesitate to charge steep interest and late payment penalties if you don’t.
If you’re a business owner or operator, here are five useful tips to ensure you’re ready to pay the first provisional tax payment for the year on the 28 August due date. For agents, you may also wish to share these tips with your clients to help them prepare.
1. Assess your cashflow
Now’s the time to look at the money coming in and going out of your business.
Cast your eyes over your accounts receivable report to see which customers owe you money. If required, ask them if they can sort their bill earlier. Conversely, see if you can buy more time if you owe suppliers money.
If cashflow is tight or you have a better use for the money, keep reading. There’s an option that lets you pay 28 August provisional tax when it suits you.
2. Be aware of the fish hooks
If you pay less than $60,000, you are what’s known as a safe harbour taxpayer. You won’t be charged interest by Inland Revenue if you pay your provisional tax late. But, you will be charged late payment penalties. You can find out more about safe harbour rules here.
3. Know your methods to calculate 28 August provisional tax
It’s important you are aware of the different methods available to calculate your provisional tax payments. For more information about the provisional tax methods available to you, see our Provisional Tax Guide.
4. Consider using tax pooling
An Inland Revenue-approved tax pooling intermediary such as TMNZ can assist if cashflow is tight. Working with us allows you to pay 28 August provisional tax at a time and in a manner that suits you, without incurring Inland Revenue interest or late payment penalties. You can defer the full payment to a date in the future or pay off what’s due in instalments.
TMNZ will date-stamp tax for you in a special trust account with Inland Revenue on your behalf. You pay TMNZ at the agreed future date or as and when it suits your cashflow, and the tax will be transferred to your account with Inland Revenue, and treated by them as being paid on time.
5. If in doubt, consult a professional
Do you have any questions about 28 August provisional tax? Seek the advice of an accountant or tax advisor. They can determine the best provisional tax calculation for your business and help you manage your payments and cashflow.
If you wish to learn more about the provisional tax payment flexibility TMNZ offers businesses, get in touch.
Get provisional tax peace of mind with TMNZ
The 28 August provisional tax payment date doesn’t need to cause stress. TMNZ offers flexible, IR-approved payment solutions that give you more control over your cashflow—without the risk of late payment penalties or use-of-money interest. Explore our full 28 August payment guide or talk to TMNZ today to find out how we can support your business this tax year.
Information in this article is correct as at 31/7/25. You should consult with your tax advisor concerning all tax matters. Read our Terms and Conditions.
First year of trading and provisional tax
What are a taxpayer’s provisional tax obligations in their first year of trading?
This is a question we receive a lot. In fact, there is certainly a lot of confusion out there.
As most know, their first year of trading is not tax-free. However, when income tax is due and payable depends on a taxpayer’s tax liability (called their residual income tax (RIT)) for the year and if they are a ‘new provisional taxpayer’.
So, with that in mind, we explain below how the provisional tax rules work for new business taxpayers.
First year of trading: RIT is less than $60,000
If a taxpayer’s residual income tax (RIT) is less than $60,000 in their first year of trading, they won’t need to pay provisional tax that year. Instead, tax is payable as a lump sum on their terminal tax date, which for most taxpayers will be 7 February or 7 April of the year after this tax year.
Use of money interest and late payment penalties will be incurred if their tax bill isn’t paid by the due date.
If the RIT is more than $5000 in their first year of trading, they will be a provisional taxpayer for the following year.
First year of trading: RIT is $60,000 or more
Inland Revenue (IR) will charge interest if taxpayers fall into the ‘new provisional taxpayer’ category and you don’t make provisional tax payments.
The new provisional taxpayer criteria are different for individuals and companies/trusts.
An individual qualifies as a new provisional taxpayer if:
- Their RIT for that tax year is $60,000 or more
- Their RIT in each of the four previous tax years was $5000 or less
- They stopped receiving income from employment and started to receive income from a taxable activity during that tax year.
A company or trust qualifies as a new provisional taxpayer if:
- Their RIT for that tax year is $60,000 or more
- They did not receive taxable income from a taxable activity in any of the four previous years
- They started receiving income from a taxable activity during that tax year.
Please take note of the different criteria for individuals and companies/trusts. This catches taxpayers out.
When is the first provisional tax payment due?
Inland Revenue will charge interest (see the current rate here) on the number of provisional tax payments a taxpayer could have made in their first year of business if they meet the new provisional taxpayer criteria.
Of course, that number depends on the date on which their business starts trading.
For someone with a 31 March balance date, refer to the table below:
| If the first year of trading starts… | Then the number of provisional tax instalments payable is… | And the due dates are… |
| Before 29 July | Three | 28 Aug, 15 Jan and 7 May |
| 29 July – 15 Dec | Two | 15 Jan and 7 May |
| 16 December+ | One | 7 May |
These dates will differ if your balance date isn’t 31 March or if you file GST returns on a six-monthly basis.
First provisional tax payment – The basic amount
So, what happens if you meet the new provisional taxpayer criteria in your first year of trading?
Well, put simply, Inland Revenue will divide your tax liability (RIT) for the year by the number of instalments you were liable to pay per the table above.
For instance, say your business starts trading on 1 October and your RIT for the year was $69,000.
IR will charge interest from two provisional tax payment dates: 15 January and 7 May. The amount on which interest will accrue at each due date will be $34,500.
Reducing exposure to Inland Revenue interest
Taxpayers may wish to pay provisional tax in their first year of trading to mitigate their exposure to IR interest if they expect their RIT to be $60,000 or more.
If they are an individual or a partner in a partnership and meet certain criteria, they may also get an early payment discount of 6.3%. This is provided they make voluntary payments before their tax date and haven’t been obligated to pay provisional tax in the current or previous four years.
Reduce IRD Interest with TMNZ
Worried about use of money interest on your first year tax bill?
If you have missed making a provisional tax payment, or wish to delay when you make the provisional tax payment, TMNZ can help. TMNZ can delay the payment of your provisional tax, or help you with any missed payments. The interest cost to you is well below Inland Revenue’s interest rate. Talk with TMNZ to stay on top of your tax obligations without the stress.
This article has been written in general terms only. You should not rely upon this to provide specific information without also obtaining appropriate professional advice after detailed examination of your situation.
Tax Finance: An alternative funding source
Growing a business is hard yakka. More specifically, it costs money.
And therein lies a problem for many small business owners: Cashflow. In fact, it’s not a problem. It’s a major problem. According to Xero’s Small Business Insights, New Zealand business sales fell by over 8% for the year ending June 2024.
Now granted, there are several choices available when it comes to accessing funds you need to. A bank loan, overdraft, credit card and an unsecured loan are just some.
But again, it’s not that simple. There can be a few hoops to jump through as part of the approval process and you will likely have to use assets as collateral, often using your personal house (or the house of a shareholder, for example) as security to get a lower cost of funds. If there is no approval or credit review process, then chances are you will be up for double-digit interest rates. Ouch.
However, there is another option. It’s one you probably have not heard about either.
The other option – Tax Finance
Did you know that your provisional tax payments are also a source of finance? Yes, that’s right – provisional tax. That thing many small business owners loathe paying. That thing that places undue pressure on, you guessed it, cashflow.
Allow us to explain.
An IR-approved tax pooling provider such as TMNZ offers a payment option known as Tax Finance. It lets you free up working capital by deferring a provisional tax payment to a later date, without incurring Inland Revenue (IR) interest of 9.89% (as at 8 May 2025) and late payment penalties.
For an upfront finance fee, you can choose a time in the future you wish to pay what you owe. Essentially, this allows you to use the money you have set aside for income tax more productively.
The finance fee or interest you pay to TMNZ is:
- similar to the interest rate charged by a bank for a residential mortgage; and
- tax-deductible.
So, you could also use the money set aside to repay your mortgage earlier, thereby reducing non-deductible interest costs charged by the banks on your personal house. The cost of Tax Finance is cheaper than using your business overdraft or an unsecured loan. Approval is guaranteed. Moreover, you do not have to provide any security.
Even better, if you already have paid tax deposits into the TMNZ tax pool, you can finance them back out while keeping the original tax date. We call this Tax Drawdown.
Altogether, this effectively treats your tax payments with the TMNZ tax pool as a revolving credit facility.
Who might Tax Finance suit?
Tax Finance will suit those who:
- are looking for funding that does not affect other lines of credit or their General Security Agreement with their bank
- want to keep headroom in their existing lending facilities
- do not wish to go through the rigmarole of the normal lending process
- want a fixed interest cost
- feel there is more to gain financially from being able to keep money in their business instead of paying income tax.
How much does Tax Finance cost?
It depends. The finance fee is based on the amount of tax due and the future date you wish to pay.
As mentioned above, the TMNZ finance fees are similar to the home loan mortgage interest rates charged by banks.
For instance, at current rates¹ it only costs $335 to defer a $10,000 provisional tax payment for six months. That works out to be approximately 6.70%pa².
How does Tax Finance work?
Here’s how Tax Finance works in a nutshell:
- Ahead of your provisional tax payment date, you tell TMNZ the amount of tax you want to finance, the future date you want to finance that to (e.g., the date you think you may be able to pay the tax amount) and pay the finance fee based on the quote TMNZ provides. TMNZ arranges for a bank to make a payment for you in its tax pool account at IR on the provisional tax date. This payment is date-stamped.
- At the agreed upon future date (known as the maturity date), you have a few options:
- settle the full tax amount by paying TMNZ; or
- roll over the financed amount for another period of time – in this case you can get a quote for a further finance fee to pay based on how long you want to finance for;
- settle part of the financed tax and roll over the remaining part;
- settle only the amount you need (if your actual tax liability has reduced).
- Upon settlement of the financed tax, ownership of the tax deposit made by the bank changes to become owned by you and sits in your tax pooling account with TMNZ. You can then request TMNZ to transfer the tax payment it is holding on your behalf to your IR account to clear your tax liability. Once they’ve processed the transfer, IR treats this tax amount as if the tax was paid on your original provisional tax date. It will also reverse any interest and late payment penalties showing on your account.
In the event you choose the fourth bullet in step 2 above, there is no obligation on you for the remaining financed tax (even if you decide to not settle any of the financed tax). You can simply walk away, no questions asked. Or you can ask us to try and sell the residual unused financed amount for you and earn you some interest return, effectively getting some of your finance fee back.
TMNZ offers a competitive rate for Tax Finance. For more information, get in touch.
¹ At at August 2024
² The published ANZ 6 month residential mortgage rate as at 7 August 2024 is 6.99%pa if you have at least 80% LVR.
How you can use tax pooling like a savings account
In business, cash is king, and being able to access funds quickly in a crisis can mark the difference between success and failure. In an unpredictable world, having the ability to access cash during challenging times can be priceless.
With tax pooling, companies can easily request refunds of provisional tax payments they have made at the year to date without waiting to file their tax returns. They can receive their refunds within a matter of days.
Tax can be one of the largest expenditure lines for a business, so flexibility is vital.
In this economic climate, it’s far from ideal to have large sums tied up with Inland Revenue (IR).
What if you can’t access the money in an emergency?
What if your profitability projections trend down over the year, meaning you’re likely to overpay?
For taxpayers with a 30 June year-end, the first instalment of provisional tax is due on 28 November. Every business and sole trader should ask themselves these questions, especially if their work is seasonal or cyclical in nature.
Businesses should also think about the accessibility of their funds if their income is difficult to predict or fluctuates due to factors such as commodity prices, adverse weather events, or the exchange rate.
Accessible tax money
Depositing tax payments into a tax pool can form part of an effective risk management strategy in times of uncertainty.
Look at it like depositing into a savings account with the added benefit of eliminating late payment penalties and IR interest. You can still access your funds if you need to, you’re covering yourself for tax time and possibly extending your time to pay.
How depositing provisional tax into a tax pool works
Tax pooling operates with the blessing of the New Zealand tax department. TMNZ has been a registered provider of the service since 2003.
Companies deposit their provisional tax payments into a shared pool instead of directly into their own IR account.
Each payment is date stamped as at the date it is made into the pool (e.g., 28 November). Funds are held in an account at the IR. This account is managed by an independent trustee, Guardian Trust.
A taxpayer holds their payments in the pool until it instructs TMNZ to transfer their deposits to their own IR account.
Taxpayers can request a refund from TMNZ of provisional tax deposits held in the pool at any time without having to file their tax return or an estimate with IR.
Refunds may be subject to meeting anti-money laundering requirements. (Corporate taxpayers also need to be mindful of imputation credit account impacts when requesting a refund of tax they hold in the pool).
A taxpayer typically instructs TMNZ to transfer their tax deposits to their own IR account once they finalise their tax return and know the amounts required at each instalment date to satisfy their liability for the year.
As the tax being transferred from the TMNZ tax pool to a taxpayer’s IR account has been date stamped to when it was originally paid into the pool, IR recognises it as if the taxpayer paid the whole amount on time.
This remits any IR interest and late payment penalties showing on the taxpayer's account.
Access previously paid funds
If you’re short on cash, tax pooling also allows you to temporarily withdraw deposits you hold in our pool.
You can access the amount of provisional tax funds you have deposited (minus an upfront interest cost). You also have the option to restore your deposit at the original deposit date once your cashflow situation has improved.
Buy some time
When preserving cashflow is high on the agenda, you can use a tax pool to defer upcoming provisional tax payments to a date in the future without incurring late payment penalties.
For example, someone with a 7 April terminal tax date could have up to 75 days from that date to settle their provisional tax.
Earn more interest if you’ve overpaid
If you have surplus tax remaining in the pool once you have transferred money to the IR to satisfy your liability, you can earn interest above the IR’s credit interest rate by selling the excess tax to other pool members that have underpaid for the year or have received a notice of reassessment from the IR.
Please note that this is subject to market demand.
The purchasing taxpayer can reduce the interest cost faced on their underpayment significantly when applying this tax against their liability. This also eliminates any late payment penalties.
Overpayers earn more interest while fellow taxpayers pay less. Everyone’s a winner!
Find out more
To learn more about managing your provisional tax, check out our calculating provisional tax guide and cashflow management tips for businesses.
Alternatively, please get in touch with our friendly support team if you have any questions. We're always happy to help.
Manage IR exposure with corporate tax pooling
With the 28 November provisional tax date fast approaching, now’s the perfect time to talk to larger clients about the benefits of TMNZ corporate tax pooling.
Tax pooling is an Inland Revenue-approved system to help New Zealand businesses manage their provisional tax. Instead of paying the IRD directly, taxpayers can purchase overpaid tax from other tax pool members and pay into the tax pool when it suits them.
As some businesses overpay tax when they have funds to spare, they help to cover other taxpayers that need a bit more time to meet their obligations. We like to think of it as businesses helping businesses.
TMNZ is proud to be New Zealand’s original tax pool, pioneering the concept in 2003. We haven’t looked back since, helping large businesses, SMEs, and sole traders with tax management.
With tax pooling, businesses that can’t meet their provisional tax liabilities can purchase tax from those that have overpaid. This is charged at a lower interest rate than the IRD’s use of money interest charges, and companies also avoid late payment penalties.
There are advantages on both sides of a tax pool. Companies that have overpaid into our pool can also earn more interest on their surplus tax than if they had paid the IRD directly.
Clients that experience volatility or pay substantial amounts of provisional tax (e.g., more than $100,000 at each date) can reduce their exposure to use of money interest by paying provisional tax into the Guardian Trust/TMNZ tax pool account at Inland Revenue (IRD) rather than directly into their IRD account.
In summary, here are all of the ways corporate tax pooling is great for large companies:
- Companies earn more interest on surplus tax than they would if they overpaid the IRD.
- Tax can be purchased if businesses have underpaid income tax.
- Tax can be swapped across provisional tax dates to reduce exposure to use of money interest.
- Overpaid tax can be refunded within three to five days — without filing a return.
- Businesses can access TMNZ’s in-house expertise for corporate tax pooling advice on how to optimise their provisional tax payments.
- Money is deposited in the TMNZ tax pooling account at IRD.
What’s more, by using the TMNZ tax pool, you and your clients are also helping to give back to New Zealand. All our profit is invested in the Whakatupu Aotearoa Foundation, supporting social and environmental causes.
Contact us today to find out how TMNZ tax pooling can help your clients.
Using the Due Date on myIR statements may needlessly expose you to UOMI
Let's talk about how TMNZ can help you to avoid interest charges with payments at P3.
Unfortunately we're seeing many clients buying tax at the wrong dates. We believe this is caused by the confusing way Inland Revenue displays the Residual Income Tax liability on the myIR statements. If a taxpayer doesn’t meet the safe harbour threshold of less than $60,000 RIT for the relevant tax year, paying tax at terminal tax date will cost you Inland Revenue Use of Money Interest (UOMI).
Why is this?
- Inland Revenue myIR transaction detail statements show the tax due split on what amounts are liable for late payment penalties and what amounts are not.
- As late payment penalties are charged on the lesser of the standard uplift amounts and RIT/3 for all provisional tax dates, they will usually show two amounts for the P3 date. The standard uplift amount will be shown as due at P3, and the balance of current year RIT will be shown as due at the Terminal Tax date.
- However, what is not clear on myIR is that use of money interest will be charged on the combined P3 total, from P3 to the date the tax is paid.
- So those that are not transferring the combined total at P3 but transferring the amount at the terminal tax date, will incur interest from the P3 date.
How can I stop this?
When transferring or purchasing tax from the TMNZ tax pool, you should be doing this for the combined P3 amount at the P3 date. This will mean you avoid interest charges.
To find out more, get in touch.
Disclaimer: This article is correct as at 19 April 2022. It is subject to change.