What happens if you don't pay IRD: the escalation path, step by step

IRD debt rarely becomes a crisis overnight. It usually builds over months: a missed GST payment, a provisional instalment pushed back, a PAYE month that slipped. The good news is that IRD’s process is predictable. If you know the steps, you can see where you are and what’s still open to you.

What happens straight after a missed due date?

Costs start immediately.

• Late payment penalties. For most taxes, 1% the day after the due date and a further 4% on the seventh day. Some taxes also attract 1% for each month they stay unpaid, though GST and income tax (including provisional tax) don’t. Employer deductions like PAYE have a separate structure: 10% when unpaid, and another 10% for each further month (IRD).
• Use-of-money interest (UOMI). Calculated daily on unpaid tax, not compounding.

These additions matter more than people expect. In IRD’s October to December 2025 report, penalties and interest made up 35% of all overdue tax debt, about $3.1 billion (IRD).

What are the steps after that?

The order below reflects how IRD describes its process. Timing varies with the size of the debt and how you respond.

Stage	What happens	What’s still open
1. Overdue notices	Automated notices in myIR and by post	Everything: pay, arrange, fund
2. Calls and texts	IRD contacts you directly	Everything; best time to agree a plan
3. Community Compliance visit	IRD staff visit the business	Arrangement or funding, usually
4. Bank deduction notice	Your bank pays IRD from your account	Clear the debt or a formal arrangement to stop it
5. Notice of Intent (companies)	30 days’ warning of credit reporting	Pay or arrange within 30 days
6. Credit reporting (companies)	Debt shared with credit agencies	Clearing the debt; reputational harm already done
7. Statutory demand (companies)	15 working days to pay or settle	Pay, settle or set aside, all against the clock
8. Liquidation application	High Court proceeding	Pay in full, oppose, or appoint a liquidator
8b. Bankruptcy (individuals)	Court proceeding against a sole trader	Pay, propose terms, or personal insolvency options

Each row has its own page: overdue notices, calls and visits, deduction notices, Notice of Intent, credit reporting, statutory demand and liquidation application.

How fast is IRD escalating now?

Faster than it used to. In the nine months to 31 March 2026, IRD issued 1,525 statutory demands (up 19%) and more than 64,000 bank deduction notices (up 61%), and had 605 companies liquidated (IRD Jan to Mar 2026 report). IRD also uses a decision-support tool to choose cases for bank deductions and for pre-approved instalment arrangements, so the response you get depends partly on how your account looks.

Somewhere on this path already? See whether funding could clear the debt and stop the escalation. No credit check to enquire.

Where do the biggest costs come from?

Not always from IRD. The steps toward the bottom of the table bring costs of their own:

• Lost trade credit and bank support after a deduction notice or credit report.
• Legal costs for responding to a statutory demand or liquidation application.
• Liquidation itself. A liquidator’s fees and expenses are paid before other creditors (insolvency.govt.nz), and directors can remain exposed through guarantees and current accounts.

That’s why the top of the table is the cheapest place to act. A formal instalment arrangement or a loan at stage 1 or 2 costs far less than fighting a liquidation application at stage 8.

What if you’re already near the bottom of the table?

It’s not too late, but time matters. If you’re facing a statutory demand or liquidation application, call a lawyer the same day, check whether the business is viable with your accountant, and find out quickly whether funding can pay the debt in full. Our guide to the next 15 working days gives a day-by-day plan.

An illustrative example

Illustrative only. Not a real client and not an offer.

A Whanganui joinery company missed two GST payments during a slow patch. Overdue notices went unread, calls went to voicemail, and the first the directors really noticed was a deduction notice that took most of the business account. With the balance at about $88,000, they used our options checker, then a property-secured loan to clear IRD before a statutory demand followed. Had they acted at stage 1, an arrangement might have done the job for far less.

Does it make a difference whether you’re a company or a sole trader?

Yes, especially toward the end of the path. Companies face credit reporting under the 2026 rules, statutory demands and liquidation. Sole traders aren’t credit-reported under that scheme, but their tax debt is personal, deduction notices can reach personal accounts and the end point is bankruptcy rather than liquidation. Sole traders can also apply for serious hardship relief, which companies can’t. See sole trader IRD debt for the individual route.

What are the signs you’re moving down the path faster?

Watch for a change in tone or channel: overdue notices turning into calls, calls turning into a booked visit, letters that mention “recovery action” or set a firm date, or a request for detailed financial information. Any of these means IRD is preparing the next step. It’s also a sign that a well-prepared proposal, or a clear plan to pay in full, will be taken seriously if you put it forward now.

Step off the path early

Wherever you are on IRD’s escalation path, tell us where things stand. There’s no credit check to enquire, your enquiry isn’t handed to a crowd of other lenders, and a real person will call to talk it through. Please say which letters you’ve received and how much you owe, as accurately as you can, so we can point you to the quickest workable way out.