A tax bill can land at an awkward time. A major customer has paid late, an unexpected expense has used up your cash reserves, or trading has been slower than you forecast. You know the payment is due, but the money is not there.
For a business owner, that can be stressful. It may be tempting to leave the Inland Revenue notice unopened until more cash comes in. Yet the sooner you understand the amount owing and the cause of the shortfall, the more clearly you can assess your options.
If your New Zealand business cannot pay a tax bill in full, start by checking the figures, keep required returns up to date and contact Inland Revenue or your accountant early. Inland Revenue says it can work with people who are struggling to file and pay, and offers processes for instalment arrangements and, in some circumstances, financial relief. The right approach depends on your business’s position.
This guide explains how to take stock of the problem, prepare for a discussion about payment and reduce the chance of facing the same pressure next time.
First, confirm what you owe
Before deciding how to respond, establish the full picture. Check the type of tax, the period it relates to, the amount due and the payment date.
Is it GST, income tax, provisional tax or another obligation? Has the relevant return been filed? Does the balance include an earlier amount that was not paid? Have you made a payment that has not yet been reflected in the information you are looking at?
Compare Inland Revenue’s records with your accounting records and bank transactions. If something does not look right, ask your accountant to help reconcile it. You need to know whether the amount is correct before building a plan around it.
Also list any other tax amounts coming due soon. Finding enough cash for one bill will bring only brief relief if another is due a fortnight later. The aim is to see the total obligation and its timing, including both overdue amounts and future payments you can reasonably expect.
If your records are behind, make that part of the immediate work. Reliable figures will help you explain your situation and work out what the business can afford.
Keep filing obligations in view
Being unable to pay and being unable to file are different problems. Do not assume that holding back a return will give you more time to deal with the payment.
Inland Revenue states that returns must be filed by their due dates and that late filing penalties may apply to returns including income tax and GST. If you are struggling to complete a return, speak to your accountant or Inland Revenue promptly about what is needed.
Filing also helps establish the correct amount owing. Without current returns, it is harder for you, your accountant and Inland Revenue to understand the business’s position.
Make a short list of all returns and payments due over the next few months. Assign each one a person responsible and a date for preparing it. If you use an accountant, confirm which tasks they are handling and what information they need from you.
Work out why the cash is short
The tax bill is the immediate issue. Understanding why the business cannot pay it is the next step.
Sometimes the cause is largely about timing. You may have completed profitable work but still be waiting for customers to pay. Perhaps a large contract required you to pay wages and suppliers well before you could invoice the customer.
In other cases, the shortfall points to a broader problem. Prices may no longer cover rising costs. A significant amount may be tied up in slow-moving stock. Owner withdrawals, debt repayments or recurring expenses may be using cash the business needs for its obligations.
Look at recent bank transactions, unpaid customer invoices, supplier bills and your profit and loss statement. Ask:
Have sales fallen, or is the business waiting to collect them?
Are margins lower than expected?
Has an unusual expense caused a temporary gap?
Were tax amounts included in the cash forecast?
Is the business repeatedly relying on next month’s receipts to pay last month’s obligations?
The answer matters because a payment arrangement may help manage an existing amount, but your business still needs a workable plan for future payments. If the same gap will arise at the next tax date, address that alongside the current bill.
Prepare a realistic cash flow forecast
A cash flow forecast shows when you expect money to enter and leave the business. When a tax payment is difficult, it provides a clearer basis for decisions than the bank balance alone.
Start with cash available now. Add expected customer payments, using realistic receipt dates rather than the dates on invoices. Then list essential outgoings: wages, suppliers needed to keep trading, rent, loan repayments, upcoming tax payments and other commitments.
Forecast at a level of detail that reflects the pressure you face. A monthly view may help with the broader picture, but a weekly view may be more useful if a payment is due soon.
Do not build the forecast around every customer paying at the earliest possible date. Mark uncertain receipts separately. Test what happens if a large invoice arrives later than expected.
The forecast should help you answer two questions: What can the business pay now, and what could it pay regularly without missing its other obligations? Be careful about proposing an amount that looks manageable only in your best month.
Inland Revenue says it may ask a business customer for a 12-month cash flow forecast when assessing payment difficulties or relief options. Preparing one also helps you evaluate whether a proposed solution is sustainable.
Contact Inland Revenue before the problem grows
You do not need to wait until the amount is overdue to raise a concern. Inland Revenue says businesses that know ahead of time they cannot pay should contact it or begin the relevant application.
Before making contact, have the basic facts ready: the type and amount of tax, the reason for the difficulty, what you can pay now and what your forecast suggests you could pay over time. If your accountant acts for you, discuss the figures and next steps with them promptly.
Be candid about your situation. An optimistic payment proposal may be appealing in the moment, but it will be difficult to maintain if it leaves no money for the business’s ordinary commitments or the next tax bill.
If you have received correspondence from Inland Revenue, note any response date and share the full message with your accountant. Avoid relying on a recollection of what it said; the precise amount, period and request may affect what needs to happen next.
Ask whether an instalment arrangement is suitable
Inland Revenue offers instalment arrangements for tax that you cannot pay in full by the due date or tax debt that is already overdue. An arrangement sets out agreed payments over time. Inland Revenue says regular agreed payments can reduce the amount paid in penalties; simply making payments yourself without an agreed arrangement may still leave you exposed to penalties and interest at the full rate.
An instalment arrangement is something to discuss based on your actual cash flow. Consider what the business can pay while continuing to meet current commitments and putting money aside for future tax obligations.
Do not treat an arrangement as a way to make the underlying debt disappear. Ask what costs may still apply and make sure you understand its conditions. Inland Revenue will assess an application and may request more information.
Your accountant can help you review the figures and, where appropriately authorised and linked to your account, an intermediary can request an instalment arrangement on your behalf through myIR.
What if an instalment arrangement is not affordable?
If the forecast shows that you cannot meet reasonable instalments, say so. Committing to payments the business cannot sustain does not resolve the problem.
Inland Revenue also has a process for financial relief. It says that, depending on its assessment, it may be able to write off penalties or certain amounts. Companies, partnerships and trusts may be asked for financial details, information about the circumstances preventing payment and supporting documents. Relief is assessed; it should not be assumed or included as guaranteed income in your plans.
If your business has several overdue obligations and no realistic path to meeting them, obtain advice promptly. Your accountant can help establish the current financial position and whether the business can continue to meet its commitments. Depending on the circumstances, you may also need specialist legal or insolvency advice.
The sooner the figures are reviewed, the more accurately you can understand the choices available.
Take care with short-term borrowing
A loan or overdraft may seem like a quick way to clear a tax bill. Before taking on debt, ask what will repay it.
If the business is waiting for a specific, reliable customer payment, a temporary funding gap may look different from an ongoing inability to generate enough cash. If tax shortfalls recur, borrowing may add repayments without changing the reason cash is tight.
Compare the full cost and terms of any proposed finance with your cash flow forecast. Include repayments and the next expected tax payments. Ask whether the business can afford all of them if sales or collections are slower than expected.
Do not make a borrowing decision solely to remove today’s pressure. First establish whether the business will be in a stronger position once the loan is in place.
Look for cash already tied up in the business
While you work through the tax position, review opportunities to improve cash flow that do not depend on new sales.
Start with unpaid customer invoices. Are any overdue? Have invoices for completed work gone out promptly? Are there queries holding up payment that you can resolve? A consistent follow-up process may help bring cash in sooner.
Next, review stock and planned purchases. Are you buying more than you need right now? Could a discretionary purchase wait until your position is clearer? Check subscriptions and other recurring costs, but keep your focus on changes that could make a material difference.
Take care when deciding which payments to delay. You need to understand the effect on staff, suppliers and the business’s ability to deliver work. A cash flow plan should show the full consequences of each proposed change.
If several small issues contributed to the shortfall, addressing them together may give you more room to manage the tax debt and continue trading.
Prevent the next tax bill from becoming a surprise
Once you have a plan for the current amount, change the process that allowed the shortfall to develop.
Put all known tax due dates into your planning calendar and cash flow forecast. Review expected obligations with your accountant as trading results change. A business whose profit has risen may need to adjust what it sets aside; a business whose income has fallen still needs to understand what amounts are due and when.
Consider keeping money earmarked for tax separate from the cash used for day-to-day spending. The amount to set aside should be based on your circumstances and updated estimates, rather than a percentage copied from another business.
Review your forecast regularly, especially if you have uneven income or large customer payments. If it shows another gap, deal with it before the deadline. Early information gives you more time to follow up invoices, adjust spending and discuss the tax position.
Affinity’s guide to cash flow forecasting for New Zealand SMEs provides a useful starting point for this ongoing work.
How Affinity Accounting can help
A tax bill you cannot pay requires more than a reminder of the due date. You need accurate records, a clear view of upcoming cash and an understanding of whether the problem is temporary or recurring.
Affinity Accounting & Advisory Limited provides accounting and tax services, including tax planning and support in dealing with Inland Revenue. Its business advisory work also includes forecasting and budgeting. If your business is facing a tax payment it cannot meet, the Affinity team can help you review the figures and discuss appropriate next steps for your circumstances.
Do not wait for the position to become harder to manage. Confirm what you owe, keep returns on track and contact Affinity Accounting to work through the numbers.
Frequently asked questions
Can I contact Inland Revenue before my tax payment is due?
Yes. Inland Revenue says that if you know ahead of time you will not be able to pay, you can contact it or start an application suited to your situation.
Should I file my GST return if I cannot pay the GST owing?
Do not ignore the filing deadline because payment is difficult. Late filing penalties may apply to GST returns. Speak with your accountant or Inland Revenue promptly if you need help completing the return or addressing the amount due.
Will an instalment arrangement remove penalties and interest?
Do not assume it will remove all charges. Inland Revenue says an agreed arrangement can reduce the penalties you pay. Ask how penalties and interest apply to your particular debt before agreeing to a plan.
Can my accountant speak to Inland Revenue for me?
An appropriately authorised tax intermediary can act on a client’s behalf. Inland Revenue says intermediaries linked to a client account can request an instalment arrangement through myIR. Confirm the authority and scope of work with your accountant.
What our clients say
“Dylan is one of the best accountants I've worked with. He makes a point of explaining things as plainly as possible to those of us who don't understand accounting speak. He has a solid knowledge of best practices in the industry, but most importantly he will always recommend what is most suitable for your specific business. I will continue to recommend Dylan and Affinity Accounting to my clients when they are looking for an accountant.”
-Jay Brooker