Quick answer
Use-of-money interest (UOMI) is the interest IRD charges on underpaid tax and pays on overpaid tax. IRD calculates it daily; it doesn't compound and it isn't included when penalties are calculated. Interest paid on underpaid tax is deductible for business purposes. The rates follow a formula in legislation and change over time, so check IRD's website for the current figure. UOMI keeps running during an instalment arrangement.
Key points
- UOMI is calculated daily on underpaid tax and does not compound.
- It isn't included when IRD calculates penalties.
- Interest paid on underpayments is deductible for business purposes.
- It continues during an instalment arrangement; paying the tax stops it.
- Calculated
- Daily
- Compounds?
- No
- Deductible?
- Yes, for business purposes
- Current rate
- See IRD (changes over time)
When people look at their IRD balance and wonder why it’s bigger than the tax they owed, use-of-money interest is often part of the answer. It’s quiet, it’s daily, and unlike penalties it doesn’t stop just because you’ve agreed a payment plan. Here’s how it works.
What is use-of-money interest?
Use-of-money interest, usually shortened to UOMI, is IRD’s interest on tax that’s paid late or underpaid. It also works the other way: IRD pays interest when you’ve overpaid. It’s meant to reflect the fact that one side has had the use of money that belonged to the other.
How does IRD calculate it?
In IRD’s words: “We calculate interest daily on your overpaid or underpaid tax. It does not compound and is not included when we calculate penalties” (IRD).
Three points follow from that:
- Daily. Every day the tax stays unpaid adds a little more.
- Not compounding. Interest isn’t charged on earlier interest.
- Separate from penalties. Penalties are worked out on the tax (and in some cases earlier penalties), not on UOMI.
What’s the current rate?
We don’t publish it. IRD explains that the rates follow formulas set in legislation and are updated to reflect market rates, so they change over time. Check IRD’s interest on overpayments and underpayments page for the figure that applies now. Your myIR statement shows the interest actually charged on your account, which is the number that matters for decisions.
Is UOMI deductible?
Yes, for business. IRD confirms that interest charged on underpaid tax is a deductible business expense, claimed through your income tax return. Interest IRD pays you on overpayments is taxable income.
Interest adding up every day? Paying IRD in full stops it. See whether funding can do that. No credit check to enquire.
Does interest stop on a payment plan?
No, and this is the most important thing to understand about UOMI. While you keep to an instalment arrangement, late payment penalties stop, but interest keeps running on the unpaid balance. IRD’s practice statement says arrangements should be as short as possible, without being so short that they cause serious hardship (SPS 18/04). The longer the plan, the more interest you pay.
That’s why comparing an arrangement with a loan has to include UOMI over the arrangement’s full term. Our arrangement vs loan cost check asks for the interest and penalties IRD has added so far, so you can see the trend in dollars.
How does UOMI work with provisional tax?
It depends on your method and the size of your tax. IRD’s guidance includes (IRD):
| Situation | When interest generally applies |
|---|---|
| Standard method, residual income tax under $60,000 | From the day after the end-of-year due date |
| Standard method, $60,000 or more | From the day after the final instalment date |
| Estimation method | On the difference from each instalment date |
| AIM | Charged if you pay late or underpay; IRD doesn’t pay interest if you overpay |
| Any method | No interest if you under or overpay by $100 or less |
This is why provisional tax planning matters, and why tax pooling can be useful: date-stamped tax can reduce interest as well as penalties.
How much of an IRD balance is usually interest and penalties?
A lot. IRD’s report for October to December 2025 said penalties and interest together made up 35% of all overdue tax debt, about $3.1 billion. For an individual business, the share depends on how old the debt is. Your myIR statement splits it out.
How do you stop UOMI growing?
Only by paying the tax. Options include paying from cash, a short instalment arrangement with bigger payments, tax pooling for income tax, or a loan that clears the balance in one step. Each has its own cost; the right choice is the one with the lowest total cost and acceptable risk for your situation. Our page on payment plans versus loans walks through the comparison.
An illustrative example
Illustrative only. Not a real client and not an offer.
A Whangārei marine services company had $80,000 of income tax and GST on a 24-month arrangement. Two years of interest, shown in myIR projections, added a noticeable amount, and a missed instalment would have brought penalties back. The directors used our cost check with the total cost of finance from a 12-month loan quote, found the difference was modest, and chose the loan for certainty.
Why doesn’t this site show the UOMI rate?
Two reasons. First, the rate changes, and a figure on a web page can be out of date the week after it’s written. IRD’s own page is always current. Second, we don’t publish rates of any kind, including our own, because every loan is priced on the business’s circumstances. When you compare an arrangement with a loan, use dollars: the interest IRD has actually charged or projects in myIR, against the total cost of finance from a written loan quote.
Does paying part of the debt reduce interest?
Yes. Interest is calculated on the unpaid balance each day, so any payment reduces the amount it’s charged on from that day forward. A lump sum early in an arrangement saves more interest than the same amount paid later. If you’re expecting money, such as a customer payment or an asset sale, putting it toward the IRD balance promptly reduces the daily cost.
Stop the daily interest
If use-of-money interest is steadily adding to what you owe IRD, find out whether a loan could clear the balance. There’s no credit check to enquire, your enquiry isn’t sent to multiple lenders, and a real person will call you. Please take the balance and interest figures from myIR so we can compare the dollars accurately.
Frequently asked questions
How is use-of-money interest calculated?
IRD calculates interest daily on underpaid or overpaid tax. It doesn't compound, and it isn't included when penalties are calculated.
Is UOMI tax-deductible?
Yes. IRD says interest you pay on underpayments of tax is deductible for business purposes and can be claimed on your income tax return.
What is the current UOMI rate?
The rate follows a formula set in legislation and is updated over time. We don't publish it, so check IRD's interest on overpayments and underpayments page for the current figure.
Does interest stop when I set up a payment plan?
No. Late payment penalties stop while you keep to an instalment arrangement, but use-of-money interest continues on the unpaid balance until it's paid.
When does interest start on provisional tax?
It depends on your method and residual income tax. For example, under the standard method with residual income tax under $60,000, IRD generally charges interest from the day after the end-of-year due date.
Official and reputable sources (checked October 2026)