Penalties and interest: Consequences of non-payment
If you do not pay your tax in full and on time, we will charge you late payment penalties and interest on amounts over $100.
It is important to note that we will try to work out a payment arrangement with you before taking any serious action to recover outstanding debt. You must contact us for an arrangement to be considered. If you know that you will not be able to pay your tax on time or if you currently have debt outstanding, there are a number of options available to you.
Below is summary of the types of things that occur when you have tax obligations and responsibilities. It is intended as an overview only to enable you to understand the general process.
How Inland Revenue collects overdue tax
Inland Revenue makes every effort to apply the tax laws fairly and correctly. If you believe that your tax assessment is incorrect, please refer to our booklet If you disagree with an assessment (IR778).
Take action before it becomes due
If you don't think that you can pay the full amount by the due date, please contact us as soon as possible. By contacting us before the due date there will be a reduction in the penalties and interest charged after the due date. If this is your first late payment in a two-year period, you will not use your grace period for payment .
If you do not pay or underpay by the due date
Penalties and interest are charged on the balance of any tax outstanding after the due date for payment has passed. If this is your first late payment in a two-year period, you will be allowed a grace period. This means that you will have a further period to make payment. If you do not pay the late payment penalty will be imposed from the due date. Interest will still apply.
What do I receive?
We will issue you a statement of account. The statement of account contains the following information:
- the amount of tax originally assessed
- the amount of penalties and interest that have been charged and are now payable
- a payment slip
Statements of account will be sent regularly until the amount outstanding has been paid. Each statement will include the amount of penalties and interest charged to date.
If employer monthly schedule amounts are outstanding you may also receive a letter advising of the amount and that a non-payment penalty may be charged.
If this is your first late payment within a two-year period, you will receive a reminder letter advising that payment has not been received and giving a further date for payment before the late payment penalty is charged.
If your tax assessment remains unpaid
Along with charging penalties and interest on unpaid amounts after a due date has passed we will also begin debt recovery action.
The three stages of debt recovery
A letter is sent to you as a reminder of the amount outstanding. The letter will set out the amount that is due including penalties and interest charged to date. A payment slip will also be enclosed.
You should contact us to discuss the options available to you.
If the amount is not paid or contact made then we can commence deductions from your salary/wages, your bank account or third party.
We send a notice to your employer or your bank asking for deductions to commence (you will receive a copy of this). Your employer or bank is obliged to deduct the amount/s unless told by us not to.
If you want the deductions to stop, you must contact us. We will discuss options with you.
If we are unable to action the deductions from your wages or bank account.
We may commence legal action against you.
We will serve you with Legal/Court papers. This could lead to bankruptcy or liquidation.
At any time during this process you can contact us to discuss the options available to you.
We will only take legal action when all other efforts to secure payment of the overdue tax have failed.
For more information please refer to our Debt options information sheet (IR592) or part 6 of our Debt options booklet (IR582).
Date published: 01 Apr 2008