Staying on the right side of IRD
A survival guide for NZ businesses
The landscape for kiwi businesses has shifted dramatically. After years of pandemic-era leniency, Inland Revenue has said ‘no more mister nice guy’, and the consequences are stark: 2,934 companies entered liquidation in 2025 – the highest number since 2010. More alarmingly, IRD now accounts for 70% of all winding-up applications, with the tax agency filing 802 liquidation proceedings in the 12 months to June 2025, more than triple the 223 filed in 2022. I checked out the Gazette and out of 24 applications for liquidation on 11 February 2026, 21 of them were initiated by the IRD. Gulp!
The numbers tell a sobering story. As of June 2025, approximately $9.3 billion in tax was overdue to Inland Revenue, including roughly $3 billion in penalties and interest. A survey by Chartered Accountants Australia and New Zealand revealed that 82% of tax agents' clients carry unpaid tax debt, with micro-businesses and SMEs accounting for 65% of all tax debt.
The government loan crisis
Adding to business pressures, defaults on Covid-era government Small Business Cashflow Loans – which were given out like candy on Halloween - have reached crisis levels. Around 20,000 small and medium-sized businesses have defaulted on $447 million worth of government loans as of late 2025, with IRD already writing off over $65 million in bad debt.
With $853 million in total government loan balances still outstanding and approximately 14,300 customers' loans in default owing just over $242 million (as of April 2025), the pressure is mounting on businesses struggling to meet both tax obligations and loan repayments.
Why businesses are struggling
Licensed insolvency practitioner Larissa Logan from Fixity Limited identified poor financial oversight as the primary cause of business failure. "Only 15% of businesses had cash flow forecasts," she noted, adding that limited financial experience meant many small businesses lacked appropriate reporting mechanisms. "They don't understand their cash position, and they miss obligations, and that leads to their tax debt not being paid and spiralling."
The construction industry has been particularly hard hit, accounting for approximately $1 billion in outstanding tax obligations as of March 2025, far exceeding any other sector. Rental, hiring and real estate services follows with roughly $500 million, while accommodation and food services carries around $325 million.
OK, enough doom and gloom, let’s look at what you can do, to not be one of these statistics. Here are five tips to keep you out of IRD’s line of sight.
5 essential strategies to stay on IRD’s good side
1. Implement robust cash flow forecasting
The statistics are damning: only 15% of failed businesses had cash flow forecasts. This isn't optional anymore. Develop a rolling 13-week cash flow forecast that clearly identifies when tax payments are due – PAYE, GST, provisional tax, and government loan repayments. Understanding your cash position before obligations fall due is the single most important step in avoiding tax debt.
Set up automated reminders for all tax deadlines and treat tax payments as non-negotiable expenses, just like rent or wages. Many businesses fail because they choose to pay wages before IRD, allowing tax debts to spiral with penalties and interest. And those tax debts probably increase every time wages and salaries are paid.
But it’s an awful catch-22 – if you don’t pay your staff, they can initiate proceedings against you (fair enough) and without staff, how can you do the work to bill clients?
2. Communicate proactively with IRD
IRD has made clear that liquidations are "a matter of last resort" used only when "all other avenues to help the taxpayer are exhausted." This means communication is critical. If you're facing cash flow challenges, contact IRD immediately rather than ignoring their attempts to contact you. Bury your head in the sand at your peril.
Between February and late 2025, IRD contacted over 1,500 customers with defaulted loans and tax debt. The results? They recovered almost $10 million, with 20% entering payment arrangements, 30% having deduction notices placed, and 33% making lump sum payments. The lesson is clear: engage early, propose realistic payment arrangements, and follow through on commitments. Follow through on your commitments and they’ll leave you be. It’s akin to one of those ugly steering wheel braces – all you have to do is make the would-be breaker-inners move on to the next car.
3. Keep your company details current
Insolvency practitioners report that some liquidation appointments occur simply because businesses haven't kept their registered office or contact details updated with the Companies Office or IRD. Correspondence about tax debt goes unnoticed until it's too late.
Regularly verify that your registered office address, email addresses, and phone numbers are current with both the Companies Office and myIR. Assign someone in your business to monitor all IRD correspondence and respond promptly.
4. Address tax arrears and government loan debt together
If you're carrying both tax arrears and government loan debt, consider a comprehensive debt consolidation strategy.
If you have property assets, refinancing both the government loan and IRD debt through a single loan secured by property can provide several advantages:
Single payment: Managing one consolidated payment is simpler than juggling multiple obligations to IRD
Improved cash flow: Extended loan terms might reduce monthly payments, freeing up working capital
Stops the spiral: Halts the accumulation of penalties and interest that can make debts unmanageable
This option works particularly well if you have equity in commercial or residential property and need to create breathing room to stabilise your business operations. While you'll need to demonstrate serviceability and have sufficient equity, the improved cash flow and reduced stress can be transformative.
5. Invest in financial infrastructure and the right advice
With IRD conducting 6,700 business audits over 2025 (a 26% increase from 2024), having professional financial systems and advice is essential.
Consider investing in:
cloud accounting software with automated GST and PAYE calculations
regular bookkeeping services to keep records current and accurate
quarterly reviews with an accountant to identify issues before they become crises (it’s mind-blowing how quickly things can get out of hand)
tax planning advice to optimise your structure and ensure compliance
HR advice to review your business structure, and help you reduce your people-related costs in a low-risk way. We recommend our friends over at Epic People for HR support and strategy.
The cost of professional financial support is invariably less than the cost of penalties, interest, legal fees, and potential liquidation. With 82% of businesses carrying tax debt, ensuring you're in the compliant 18% should be a strategic priority.
The cost of HR support from an HR adviser is significantly less than from an employment lawyer.
The bottom line
The IRD leniency ship has well and truly sailed. With liquidations at 15-year highs, audits increasing by 26%, and IRD accounting for 70% of winding-up applications, the consequences of tax non-compliance have never been more severe. The department has extra government funding specifically for compliance and debt collection, and they're using it aggressively.
However, IRD has also made clear they will work with businesses that engage proactively and honestly. The key is to act before you receive a statutory demand or liquidation notice. Whether that means implementing better financial controls, negotiating a payment arrangement, or refinancing your obligations through property-secured lending, acting now can mean the difference between business survival and becoming another liquidation statistic.
Your tax obligations aren't going away and ignoring them will only accelerate their growth through penalties and interest. Face them head-on, seek professional advice, and remember: staying on the right side of IRD isn't just about compliance – it's about the long-term viability of your business and the people who work for you.
This article is for general information purposes only and does not constitute financial or legal advice. Always consult with qualified professionals regarding your specific circumstances.