Taxpayers who overpay their tax to the IRD will be refunded in due course. Taxpayers who do not meet their tax obligations may face penalties and interest charges. This is often called use of money interest (UOMI). To avoid such charges, you should pay the full amount of tax you owe by the due date.

The main kinds of charges for failing to meet tax obligations are
  • a shortfall penalty where the correct amount of tax is higher than the amount you paid (e.g., because of an understatement of tax, or where the amount of a refund or loss is reduced)
  • late payment interest if you pay the IRD after the date it was due
  • a late filing penalty if you do not file a return by the due date
  • interest on the amount of tax you owe if you have underpaid your tax. The interest rates charged are based on market rates for unsecured lending.

For more information refer to the IRD links below.

What interest is applied to

Interest applies to these taxes, duties, and revenue types:

  • casino duty
  • child support deductions by employers (CSE)
  • fringe benefit tax (FBT)
  • gaming machine duty and problem gambling levy
  • goods and services tax (GST)
  • imputation accounts
  • income tax
  • KiwiSaver contributions
  • lottery duty
  • non resident withholding tax (on interest and dividends)
  • PAYE deductions
  • residential land withholding tax (RLWT)
  • resident withholding tax (RWT) (on interest and dividends)
  • student loan deductions by employers
  • ESCT (employer superannuation contribution tax)
  • totalisator duty (betting levy)
  • Working for Families Tax Credits (WfFTC)
Interest amounts

Interest gets calculated daily on your underpaid tax. It does not compound and is not included when calculating penalties.

The interest rates are set by government and are based on market rates, so they vary over time.

Helpful links

Penalties & Interest – IRD

Interest on overpayments and underpayments – IRD

 

COVID-19 penalties and interest

The IRD know that many taxpayers are under financial pressure to pay their taxes in full and on time because they have been adversely affected by COVID-19. To keep your business going, Cornish Accounting may need to make arrangements with the IRD to pay your tax over time. If your ability to make a tax payment on time has been affected by COVID-19, the IRD may be able to write off use-of-money interest.

Options for managing debt due to COVID-19

One of the following solutions may be right for you:

  • An instalment arrangement.
  • An instalment arrangement with a later payment start date
  • The IRD write-off part of what you owe and you pay the rest as a lump sum or in an instalment arrangement.
  • The IRD write-off part of what you owe and you pay the rest as a lump sum or in an instalment arrangement. You make a part payment and the IRD write off the rest.
  • If you have paid tax late that included penalties and interest, you can request remission of the penalties and interest.
  • The IRD write off all the outstanding tax due to serious hardship.

 

Note: Please advise the IRD if you are unable to pay any tax before the due date.

Helpful links

COVID-19 penalties and interest – IRD

COVID-19 requesting financial relief – IRD

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