How big is the tax debt problem?
Tax debt has become one of the defining features of the 2026 business environment. According to Companies Office and insolvency data reported by NewsWire in September 2026:
- overall tax debt stood at $9.4 billion in March 2026
- micro and small businesses owed 65% of outstanding debt
- GST and employer deductions made up 57% of it
- Inland Revenue filed around two-thirds of all company winding-up applications in 2026, and nearly 80% in August alone
An insolvency practitioner quoted in the report noted that some of the debt dates back to the Covid period, when IRD was not applying pressure. That pressure has now returned.
Why does tax debt build up in established businesses?
It is rarely deliberate. Common causes include:
- Using GST and PAYE as working capital. The money sits in the trading account and gets spent before the return is due.
- A large provisional or terminal tax bill after a strong year.
- A customer failing to pay, leaving a hole in cash flow at return time.
- Rapid growth, where rising GST obligations outpace cash collections.
- Falling behind on filing, which leads to estimated assessments and penalties.
What happens if you do nothing?
- Late payment penalties are added to the overdue amount.
- Use-of-money interest accrues on the unpaid balance.
- IRD collection activity escalates, which can include deduction notices to your bank or customers.
- For companies, IRD can apply to the High Court to liquidate the company.
- Directors may face personal consequences in some circumstances, particularly with unpaid PAYE.
The longer it runs, the fewer options remain.
Option 1: pay in full
If the business has the cash, or can raise it quickly, paying in full stops penalties and interest immediately. This is the cleanest outcome.
Option 2: an instalment arrangement
Inland Revenue offers instalment arrangements for businesses that cannot pay in full. You can apply through myIR. IRD notes that making regular agreed payments reduces the penalties you pay. It also warns that paying in regular instalments without an agreed arrangement may still attract penalties and interest at the full rate.
Things to know:
- IRD will expect current returns to be filed and new obligations kept up to date.
- The instalments must be realistic; a defaulted arrangement makes future negotiation harder.
- Interest continues to be relevant while the debt is outstanding, so check the total cost over the arrangement’s life.
Option 3: refinance the tax debt
A loan can pay IRD out in full, replacing the tax debt with a facility that has a clear repayment schedule.
Property-secured loans are the most common route. IRD debt can be refinanced or paid out with a first or second mortgage over a home, rental, commercial property or land, even if the property already has a mortgage. No financials or tax returns are needed for the initial assessment, which matters when the latest accounts are behind. Bad credit, defaults and arrears are considered case by case. In some cases funding can happen within 24 hours of approval.
Consolidation can also combine IRD debt with other short-term borrowing into one facility. See refinancing and consolidating business debt.
How do the options compare?
| Option | Stops penalties | Speed | Effect on cash flow | Best suited to |
|---|---|---|---|---|
| Pay in full | Yes | Immediate | Large one-off hit | Businesses with cash available |
| Instalment arrangement | Reduces them | Weeks to agree | Spread over time | Smaller debts, stable cash flow |
| Refinance with a loan | Yes, once IRD is paid | Days to weeks | Spread over the loan | Larger debts, businesses with property |
Every loan is priced on the individual circumstances. Compare the full cost of each path, not just the monthly figure.
Fix the cause, not just the debt
Clearing the arrears only helps if the problem does not recur. Practical steps:
- Open a separate tax account and transfer GST and PAYE into it with every deposit or pay run.
- Build tax into your 13-week cash flow forecast.
- Review GST filing frequency with your accountant; a different frequency may suit your cash cycle better.
- Talk to your accountant about provisional tax so large bills are not a surprise.
- Fix the underlying working capital gap, perhaps with a working capital facility, so tax money is not used to fund trading.
When to get help
If the business owes a significant amount, is receiving IRD collection letters, or cannot see a way to pay, talk to your accountant straight away. If refinancing is an option, a 60-second enquiry with us does not affect your credit score, and a lending specialist can outline what is possible.
Quick answers
Can I use a business loan to pay IRD?
Yes. Paying tax is a business purpose, and IRD debt can be refinanced or paid out with a property-secured loan. It is often worth comparing the cost of a loan with continuing penalties and interest.
Will IRD agree to an instalment arrangement?
IRD considers applications made through myIR. It will generally want to see that you can meet the instalments and keep current obligations up to date.
Can IRD liquidate my company?
Yes. Inland Revenue can apply to the High Court to put a company into liquidation over unpaid tax, and it has done so frequently in 2026.
Does IRD debt affect my ability to borrow?
It can. Lenders see tax arrears as a risk. Property-secured lenders can still consider applications, and bad credit and arrears are considered case by case, especially when the loan will clear the IRD balance.