Leaving a tax balance unpaid has a cost beyond the amount on the return. Inland Revenue’s use-of-money interest, usually called UOMI, can keep adding to that balance while you decide what to do. Here is the current position for New Zealand businesses, checked against IRD guidance on 10 November 2026.
The current rates, and when they started
From 16 January 2026, IRD’s annual interest rate on underpaid tax is 8.97%. The rate IRD pays on qualifying overpaid tax is 2.25%. These replaced 9.89% and 3.27% respectively. The January change is already in force; it is not a new November announcement.
The two rates are different, and neither should be confused with your mortgage rate, a bank deposit rate or the prescribed rate for an employee loan. Each applies to a different situation. IRD reviews its rates against market conditions, so check the current table before relying on an older estimate.
What does 8.97% mean in dollars?
For a simple illustration, assume $10,000 of tax remains overdue for 30 chargeable days, the balance stays unchanged and the 8.97% rate applies throughout. Using a 365-day year, the interest is approximately $10,000 × 8.97% × 30 ÷ 365 = $73.73.
That is an illustration, not a statement of your actual liability. Payment allocations, the applicable start date, credits, rate changes and tax-specific rules can alter the result. The example excludes penalties. A larger balance or a longer delay increases the cash cost.
IRD calculates UOMI daily and does not compound it. This does not make the balance harmless: interest and penalties are separate, and a payment may be allocated to outstanding interest before reducing tax, subject to the provisional-tax exception.
When does interest start?
For an ordinary underpayment, interest generally starts on the day after the original due date. A notice arriving later does not necessarily move that original date. IRD also has specific rules for additional payment time shown on some notices.
Provisional tax is an important exception to any simple rule of thumb. Your method, instalment payments and circumstances affect interest exposure. Do not apply the ordinary overdue-bill example to every provisional-tax shortfall. Check your actual position before estimating or changing a payment.
A payment plan is not automatically interest-free
If you cannot pay in full, contact IRD promptly rather than leaving the balance unexplained. A realistic instalment proposal can make the next steps clearer, but do not budget on the assumption that agreeing to instalments automatically stops UOMI.
IRD remits interest only in limited circumstances. Cash-flow pressure on its own should not be treated as a promise of remission. Any request needs to fit the relevant criteria and be supported by the facts.
What about refunds and the tax return?
The 2.25% credit rate does not mean every tax refund earns interest from the date you paid. The start date can depend on the original due date, when the overpayment arose and when you filed the return. GST refunds and provisional tax have additional rules.
Interest IRD pays is gross income. It may still need to be returned even when it is transferred to another tax balance instead of reaching your bank account. IRD also says interest paid on underpaid tax can be deductible for business purposes; the correct period and treatment need checking, especially after a reassessment. Do not treat a tax penalty as the same expense.
Your next practical steps
- Download the relevant myIR statements and identify each tax period.
- Separate the original tax, interest, penalties and any transferred credits.
- Check payment dates and whether payments reached the intended tax account.
- Build tax payments and potential interest into your short-term cash forecast.
- Review provisional-tax exposure separately rather than assuming one formula covers everything.
Tāmaki Advisory can reconcile the account, explain how the interest arose and help prepare a realistic payment plan or provisional-tax review. Bring the notices and payment records, even if you are not yet sure which figures are wrong.
Make the next step practical
Use the ideas here as a starting point for a better conversation. The right answer depends on your records, timing and circumstances, so keep the assumptions visible and revisit them when something changes.