There's a particular kind of dread that arrives with the GST return when the money to pay it isn't in the account. You've collected the GST, you've deducted the PAYE off your staff's wages, but a quiet Tuesday or a bad month means it's been used to pay suppliers or rent instead. It happens to good operators all the time — and in 2026 it's the single fastest route from "tight month" to a winding-up application in New Zealand hospitality.
This is a practical guide to getting ahead of it: what Inland Revenue (IRD) actually does when you fall behind on GST or PAYE, how much runway you really have, and the exact steps to set up an IRD tax debt instalment arrangement in myIR before things escalate. It's general guidance, not tax or legal advice — confirm your own situation with Inland Revenue or your accountant. The one message to take away now: the worst thing you can do is go silent.
Key takeaways
- Set up an instalment arrangement in myIR as soon as you know you can't pay in full — IRD says that by keeping to an agreed plan "you may stop us taking further collection action" (Inland Revenue, 2026).
- Silence is what tips operators over. Engaging early keeps the cheaper, quieter options open; ignoring letters is what leads to a statutory demand.
- A statutory demand gives a company just 15 working days to pay before IRD can move to wind it up (Hesketh Henry, 2025) — that's the point of no return to watch for.
- Interest keeps running, but penalties can stop. Use-of-money interest on overdue tax is 8.97% a year from 16 January 2026 (Inland Revenue, 2026); setting up an arrangement stops further late-payment penalties.
- IRD is enforcing harder than it has in years. It made 802 applications to wind up companies in the year to June 2025, up from 586 (NZ Herald, 2025).
- The GST and PAYE you collect was never your money — ring-fencing it as it comes in is the habit that keeps you out of this whole process.
What does IRD do if you can't pay your GST or PAYE?
The short answer: if you can't pay in full, apply for an instalment arrangement in myIR — ideally before the due date, or as soon as you realise you're behind. IRD describes an instalment arrangement as "a method of financial relief" rather than "a method of payment," and confirms that "by keeping to the agreed repayment plan, you may stop us taking further collection action" (Inland Revenue, 2026).
That last part is the whole game. IRD has a ladder of collection actions it can climb — from interest and penalties up to deduction notices and, eventually, a court application to wind your company up. An agreed arrangement keeps you off that ladder. Doing nothing lets IRD climb it.
The instinct when the money isn't there is to put the letter in a drawer and hope a good fortnight fixes it. In hospitality, where margins are thin and cash is seasonal, that's exactly how a manageable shortfall becomes an existential one. Owners who get on the phone early almost always have more options — and cheaper ones — than owners who wait until a demand arrives.
Why IRD is moving faster in 2026
It helps to understand the backdrop, because it explains why the old "they'll get to it eventually" assumption no longer holds.
Overdue tax and entitlements debt in New Zealand reached $9.0 billion at 31 December 2025, up from $8.46 billion a year earlier, and IRD forecasts it will "reach $10.5 billion by 30 June 2026" (Inland Revenue, 2025). A government directive backed by $64 million in funding has pushed harder enforcement since July 2025 (The Spinoff, 2026), and Budget 2026 added "an investment of $15 million per annum for IRD debt compliance activities" — funding that "tends to increase audit, follow up, and debt escalation activity" (Grant Thornton, 2026).
The enforcement numbers show what that looks like on the ground. In the year to December 2025, IRD issued "44,004" section 157 deduction notices (which pull money directly from a bank or third party), "compared to 24,369" the year before; it issued "986" statutory demands; and it "liquidated 310 companies and bankrupted 83 individuals in the year-to-date" (Inland Revenue, 2025).
Hospitality is squarely in the firing line. There were 414 hospitality liquidations in the past year, up 49% year-on-year — about 1.3% of the whole sector (The Spinoff, 2026). And IRD is the one driving most of it: it made "802" applications to wind up companies in the year to June 2025, "up from 586 in the year prior" and "more than triple that of 2022 (223)," accounting for "70% of all winding-up applications in each of the past two months" (NZ Herald, 2025).
None of this is meant to frighten you. The point is the opposite: IRD is now far more likely to act, and far sooner, which is exactly why getting in first — before they do — is worth the awkward phone call.
What being behind on GST or PAYE actually triggers
If you do nothing, here is the ladder IRD climbs. Knowing the steps tells you how much runway you have.
| Stage | What happens | Roughly when |
|---|---|---|
| Overdue | Late-payment penalties start and interest accrues on the unpaid tax | From the day after the due date |
| Contact | IRD letters, texts and calls asking you to pay or arrange | Weeks |
| Deduction notice (s157) | IRD instructs your bank or a third party to pay it your money directly | If contact is ignored |
| Statutory demand | Formal notice; 15 working days to pay or the company is presumed insolvent | A serious escalation |
| Winding-up application | IRD applies to the High Court to liquidate the company | After the demand expires |
| Liquidation order | A liquidator is appointed; you lose control of the business | Final stage |
Two figures on that ladder matter most.
First, the cost of waiting. Use-of-money interest (UOMI) on overdue tax is 8.97% a year from 16 January 2026 (Inland Revenue, 2026), and on top of that IRD adds a 1% late-payment penalty, a further 4% penalty if the tax stays unpaid, and ongoing monthly late-payment penalties while the debt remains (Inland Revenue, 2026). The debt grows the longer you leave it.
Second, the point of no return. Once a statutory demand is served, the company has "15 working days from service to comply" — pay, compromise, or secure the debt — and only "10 working days" to apply to court to set the demand aside (Hesketh Henry, 2025). Miss that window and the company is presumed unable to pay its debts, which lets IRD apply to liquidate. If a statutory demand has landed, that's the moment to get professional advice the same day — not next week. It's also when the risk turns personal: if you signed a personal guarantee on the lease or a loan, the company's failure can reach your own assets — our guide to what happens to your family home if your restaurant fails explains the exposure.
How to set up an IRD tax debt instalment arrangement in myIR
This is the step most owners don't realise is genuinely easy and fast. You can propose a payment plan online without phoning anyone.
Step 1 — Work out what you can realistically pay
Before you log in, look at your cash position and decide on a weekly, fortnightly or monthly amount you can actually sustain. IRD would rather agree a smaller amount you'll keep to than a larger one you'll default on. An arrangement you break is worse than no arrangement, because it signals you can't be relied on.
Step 2 — Apply through myIR
Log in to myIR and, from the homepage, select "Request an instalment arrangement" (Inland Revenue, 2026). myIR will show a suggested minimum payment amount; you can propose your own frequency and amount. You'll typically be asked about your income, outgoings and why you can't pay in full, so have rough figures ready.
Step 3 — Get the timing right to stop penalties
If you set the plan up before the due date and keep to it, IRD will only charge the first 1% late-payment penalty. If you arrange it on or after the due date, you'll still be charged the first 1% and 4% penalties — but the monthly late-payment penalties are "only charged up until the date you set up the arrangement," and "as long as you make the agreed payments under an instalment arrangement, we stop charging you late payment penalties from the day you set it up" (Inland Revenue, 2026). Interest still runs, because that compensates the government for the unpaid tax — but you've stopped the penalty bleed.
Step 4 — Keep to the plan, and protect yourself from collection action
This is the payoff. IRD confirms that "paying your tax by an arrangement also means we will not take further actions to collect the money you owe, including extra payments from your wages" (Inland Revenue, 2026). One catch worth noting: an arrangement "does not automatically include any future taxes you may need to pay," so keep your next GST and PAYE current, or fold them in.
When to apply for financial relief instead
If your business genuinely can't service even a modest instalment plan, the next step up is financial relief. For companies, partnerships and trusts, IRD's financial-relief application lets you set out "what events or circumstances are stopping you from repaying the debt," your assets and liabilities, and — where it helps your case — a "Twelve month cash flow forecast — IR591" you fill in and upload as part of the application (Inland Revenue, 2026).
In the right circumstances this can mean part of the debt is written off or repayments are restructured around what the business can bear. It's a more involved process than a standard instalment arrangement, and it's where an accountant earns their fee — but it exists precisely for viable operators caught by a cash-flow squeeze, not just for businesses at the very end.
How to make sure you never end up here again
The operators who don't fall into tax debt mostly do one unglamorous thing: they treat GST and PAYE as money that was never theirs.
- Ring-fence it as it comes in. Move your GST portion (and the PAYE you deduct) into a separate "tax" bank account every week, so it's not sitting in the main account looking spendable. It's the single habit that prevents this whole problem.
- Reconcile monthly, not at filing time. Knowing your GST position a fortnight early is the difference between arranging a plan before the due date (cheaper) and after (more penalties).
- Talk to IRD early, every time. The pattern across every enforcement story is the same — the businesses that engaged kept their options; the ones that ignored contact got the demand.
It's also worth looking at why the cash isn't there. For a lot of restaurants, the same dollars that should be funding the GST bill are being skimmed off the top by delivery commissions — which is why owners increasingly push customers to order direct rather than hand roughly 30% to an aggregator on every order; our breakdown of what Uber Eats really costs New Zealand restaurants runs the numbers. Keeping more of each sale through your own ordering channel is one way to ease the cash-flow that funds the tax bill (DineHere builds restaurant websites with ordering if owning that channel is on your list). And tax isn't the only fixed cost climbing — getting public-holiday pay right under the Holidays Act and budgeting for the rising MPI Food Business Levy both protect the same cash position.
Frequently asked questions
Will IRD shut me down for one late GST return?
No. A single late return or payment triggers penalties and interest, not liquidation. The serious enforcement steps — deduction notices, statutory demands, winding-up applications — come after sustained non-payment and ignored contact, not one missed filing.
Can I set up a payment plan with IRD online?
Yes. From the myIR homepage you select "Request an instalment arrangement" and propose a weekly, fortnightly or monthly amount; you don't have to phone anyone first (Inland Revenue, 2026).
Will an instalment arrangement stop the penalties?
It stops further late-payment penalties from the day you set it up, as long as you keep to the plan. Interest (UOMI) still applies, because that compensates the government for the unpaid tax (Inland Revenue, 2026).
What is a statutory demand and how long do I have?
It's a formal legal notice that you owe a debt. A company has 15 working days from service to pay or secure the debt, and only 10 working days to apply to court to set the demand aside (Hesketh Henry, 2025). If you receive one, get professional advice immediately.
What's the current interest rate on overdue tax?
The use-of-money interest rate IRD charges on underpaid tax is 8.97% a year, effective from 16 January 2026 (Inland Revenue, 2026). It's reviewed regularly against market rates, so check the current figure when you plan.
Can IRD take money directly from my bank account?
Yes — a section 157 deduction notice instructs your bank or another third party to pay your money directly to IRD. IRD issued 44,004 of these in the year to December 2025 (Inland Revenue, 2025). Keeping to an agreed arrangement is what prevents this.
What happens if I just ignore the letters?
You climb the enforcement ladder: penalties and interest, then contact campaigns, then a deduction notice, then a statutory demand, then a winding-up application. Across the data, ignoring IRD contact is the common thread in businesses that ended up liquidated — IRD made 802 winding-up applications in the year to June 2025 alone (NZ Herald, 2025).
Can I include both GST and PAYE arrears in one arrangement?
Generally yes — you can arrange existing debt across tax types. But an arrangement "does not automatically include any future taxes," so keep upcoming GST and PAYE current or add them as they fall due (Inland Revenue, 2026).
What if I can't even afford a small instalment plan?
Apply for financial relief. For companies, partnerships and trusts you set out why you can't repay and your financial position, and can upload a 12-month cash-flow forecast (IR591); in genuine hardship part of the debt may be written off or restructured (Inland Revenue, 2026).
Is the GST I've collected really "my money" to use for cash flow?
No — and that's the mindset that gets owners into trouble. GST is collected on the government's behalf, and PAYE is deducted from your staff's wages. Treating it as working capital is borrowing from a creditor that now enforces faster than almost any other. Ring-fencing it weekly is the fix.
