Business loans to clear IRD tax debt

Tax debt builds quietly. A strong quarter brings a large GST bill just as a big customer pays late. A new hire pushes up PAYE. Provisional tax lands in a month when stock has eaten the cash. Before long, the IRD balance is a number that keeps an owner up at night. The good news is that there are usually options, and the earlier you act, the more of them there are.

Start with IRD itself

IRD would rather be paid over time than not at all. For many businesses, an instalment arrangement, agreed through myIR or by phone, is the cheapest way to clear a tax debt. Penalties and interest may still apply, but you avoid loan fees and keep property out of it. It’s worth asking your accountant to approach IRD on your behalf, especially if returns are overdue.

A loan becomes worth comparing when:

• IRD won’t agree to an arrangement you can realistically meet.
• The debt is large and growing, with penalties and interest stacking up.
• You need to clear IRD as part of a wider refinance or business sale.
• A lender, landlord or customer needs to see the debt resolved.

What lenders want to see

1. Every overdue return filed. The lender needs the full debt, not an estimate.
2. A current IRD statement of account from myIR, showing GST, PAYE and income tax separately.
3. An explanation of how the debt arose, in a few plain sentences.
4. What’s changed, such as a separate tax account, a new bookkeeper or monthly GST filing.
5. Bank statements showing current trading.
6. Property details if a property-backed loan is being considered.

The explanation matters more than owners expect. A lender is far more comfortable with “we grew 40% in a year and didn’t set aside enough GST; we now transfer 15% of every deposit into a tax account” than with silence.

Which loans fit

For smaller debts with a clean credit file and current filing, an unsecured business loan or working capital loan can sometimes work. For larger debts, or where returns were behind, property is usually needed. A second mortgage over a home or commercial property is common, often as a bridge until the business can refinance with a bank.

Why PAYE debt is treated differently

PAYE and KiwiSaver deductions are taken from employees’ pay and held for IRD. When they aren’t passed on, lenders see it as a warning sign, and directors can face personal consequences. If you owe PAYE, show that current payroll obligations are now being met on time, ideally through payroll software that files automatically.

An illustrative example

A Whangārei earthmoving company owes IRD about $95,000 across GST, PAYE and terminal tax after a year of rapid growth. IRD has offered an instalment arrangement, but the repayments would take most of the company’s monthly surplus. The directors file the overdue return, get a statement of account and use a second mortgage over a rental property to clear the debt, with an eighteen-month term and an exit through refinancing the rental with their bank. They also move to monthly GST filing. Illustrative only.

Stopping it happening again

The single most effective habit is a separate tax account. Transfer a fixed share of every deposit, enough to cover GST and a provision for income tax, the day it arrives. Pay PAYE from payroll software that files on time. Consider monthly GST filing if large two-monthly bills are causing trouble. Lenders notice these changes, and they make the next application easier.

When the debt is very large

If tax debt is so large that neither IRD instalments nor a loan look manageable, get advice from your accountant or an insolvency professional early. Borrowing against a home to fund a business that can’t recover only spreads the loss. A frank conversation now protects your options.

Talking to IRD while you arrange finance

If you’re arranging a loan to clear the debt, tell IRD. An officer who knows a lump-sum payment is coming is more likely to hold off on further action, such as deduction notices to your bank or customers. Keep a note of who you spoke to and what was agreed, and keep filing new returns on time while the loan is arranged so the debt doesn’t grow in the meantime.

Talk to us before it grows

Tell us roughly what’s owed, what it’s made up of, whether returns are filed and whether there’s property that could help. Asking won’t mark your file, your enquiry isn’t passed down a list of lenders, and a real person reads it and calls you to talk it through without judgement. Start your enquiry.