GST and PAYE arrears: a practical cash flow fix

Falling behind on GST and PAYE is one of the most common money problems in New Zealand small business, and one of the most misunderstood. It feels like a tax problem, but it almost always starts as a cash flow problem. Money that belongs to Inland Revenue sits in your business account for weeks, it quietly gets used to cover wages, rent and suppliers, and by the time the return is due, it's gone. This guide explains why GST and PAYE arrears build up, why they matter more than ever in 2026, and a practical plan to fix the cash flow gap underneath them.

If you're reading this with overdue returns and a knot in your stomach, take a breath. This is fixable, and the fix is mostly about systems, not blame.

Why do GST and PAYE arrears build up so easily?

Because both taxes are collected by you and paid later, so for a while the money looks like yours. When cash is tight, it's natural to use it, fully intending to catch up before the due date.

Here's how it happens in practice:

• GST is added to your invoices and collected from customers, then paid to Inland Revenue with your return. In between, it sits in your account alongside everything else.
• PAYE and other employer deductions are taken from your staff's wages each payday, including their KiwiSaver contributions, then paid to Inland Revenue later.
• A slow month, a big supplier bill or a customer paying late means that "tax money" gets used to keep the lights on.
• The return arrives, the cash isn't there, and the first penalties land. Next month the same thing happens, and the arrears snowball.

In effect, the business has been borrowing from Inland Revenue without anyone deciding to. That's why the fix has two parts: clear the old balance, and stop the borrowing.

Why is Inland Revenue focused on GST and PAYE debt in 2026?

Because it has said so. In January 2026 Inland Revenue announced it was continuing to focus on overdue debt and returns, particularly GST and employer debt, through a targeted campaign aimed at customers who hadn't responded to earlier contact.

Its approach runs in stages. First it contacts you to resolve the debt and any overdue returns, through full payment or an instalment arrangement. If it can't reach you, it leaves a message and makes a final attempt. If that doesn't produce a positive response, it may visit, make a bank deduction or take other enforcement action, which may include considering bankruptcy or liquidation. In short, GST and PAYE arrears are near the top of IRD's list, so they should be near the top of yours.

How do GST arrears and PAYE arrears differ?

Both are serious, but they're not identical. This table sets out the key differences.

	GST arrears	PAYE and employer deduction arrears
Whose money it is	Collected from your customers	Deducted from your employees' pay, plus employer contributions
Late payment penalties	1% the day after the due date, 4% on day 7	1% the day after the due date, 4% on day 7
Ongoing monthly penalty	Not applied to GST	Can apply: 1% each month the balance stays unpaid
Interest	Charged on overdue tax	Charged on overdue tax
Knock-on effect	Harder to claim refunds cleanly; returns fall behind	Staff KiwiSaver and other deductions affected; payroll stress
Priority	High	Very high

The monthly penalty is the key reason PAYE arrears tend to grow faster than GST arrears. If you have to choose what to clear first, PAYE usually comes first.

What's the real cash flow problem behind your arrears?

Tax arrears are the symptom. To stop them coming back, you need to name the cause. The most common ones we see are:

• Late-paying customers. You've invoiced and paid the GST on those invoices, but the money hasn't arrived. Our guide to late-paying customers and cash flow has practical fixes.
• Seasonality. Hospitality, tourism, rural and trade businesses often have strong and weak months, and the tax falls due regardless. See our guide to seasonal business cash flow.
• Growth. Taking on staff or a big contract means wages and costs go out before revenue comes in.
• Thin margins. If prices haven't kept up with costs, there's simply not enough left over after tax.
• Rising payroll costs. The minimum wage rose to $23.95 an hour from 1 April 2026, and the KiwiSaver default contribution rate rose to 3.5% from the same date. For labour-heavy businesses, both lift the amount flowing through payroll and PAYE.

Most businesses have a combination. Spend twenty minutes with your accountant working out which ones apply, because the cure depends on the cause.

How do you fix GST and PAYE arrears? A 90-day plan

Here's a practical plan that works for most small businesses. Adjust the timing to suit, but keep the order.

1. Days 1–3: face the numbers. Log in to myIR, check GST and employer accounts, and list the tax, penalties and interest for each.
2. Days 1–7: file every overdue return. Inland Revenue's campaign covers overdue returns as well as debt. You can't fix what isn't measured.
3. Week 1: call Inland Revenue. Explain what happened and what you're doing about it. Ask about an instalment arrangement if you need breathing room while finance comes together.
4. Weeks 1–2: choose how to clear the arrears. For smaller balances, an instalment arrangement may be enough. For larger balances, a property-secured loan can pay IRD in full. Our guide to an IRD instalment arrangement vs a business loan helps you decide.
5. Weeks 2–4: open a separate tax account. Set up automatic transfers for GST and PAYE (details below).
6. Month 2: fix the cause. Tighten payment terms, chase overdue invoices, review pricing or restructure rosters.
7. Month 3: review and lock it in. Check that every return has been filed and paid on time since the reset, and that the tax account balance matches what you owe.

After 90 days of clean tax, you're in a far stronger position with Inland Revenue, your bank and any future lender.

How can a property-secured loan fix the cash flow gap?

A loan secured on property can do two jobs at once: pay Inland Revenue in full, and give the business enough working capital that it doesn't need to dip into tax money again.

That second part matters. Many owners clear their arrears, then fall behind again within months because the underlying cash gap hasn't changed. Including a working capital buffer in the loan breaks that cycle. With fundU, repayments can be interest-only, capitalised with no scheduled monthly repayments during the term, or principal and interest, depending on the approved terms, so the loan can be shaped around your cash flow while the business recovers.

The security can be your home, a rental, commercial premises or property owned by your company or family trust, on a first or second mortgage. For more on the payout process, see our guide on how to pay off IRD debt with a business loan.

Example scenario

An Auckland cafe with 14 staff fell about $80,000 behind on PAYE and GST after a quiet winter, a lease review and rising wage costs. The owners had set up an instalment arrangement but kept slipping behind on the current month's PAYE while paying the old debt.

The owners had a home on Auckland's North Shore worth around $1.4m with a bank mortgage of $700,000. A second mortgage of $130,000 cleared the arrears in full, covered the next PAYE and GST payments, and left about $40,000 as a working capital buffer. The owners opened a separate tax account the same week and set up automatic transfers on every payday and every EFTPOS settlement. The exit was a refinance to the bank after a clean year of tax payments. This is an illustrative example only.

How do you set up a tax account system that actually works?

Keep IRD's money somewhere you can't accidentally spend it. A simple two-account system does the job for most small businesses.

• Open a separate savings account at your bank, labelled "Tax" or "IRD".
• Move GST on every receipt. At the standard 15% rate, the GST portion of a GST-inclusive amount is three twenty-thirds, roughly 13%. Transfer it as money comes in, not when the return is due.
• Move PAYE every payday. Transfer the full employer deductions, including KiwiSaver, on the same day wages are paid.
• Add a provisional tax allowance. If you pay provisional tax, move a set percentage of profit across too. Our guide to provisional tax cash flow planning covers the options.
• Automate it. Scheduled transfers remove willpower from the equation.
• Reconcile monthly. The tax account balance should always be at least what you owe for the current period.

The tax account isn't a savings goal. It's Inland Revenue's money sitting in a separate drawer. If you find yourself "borrowing" from it, that's the signal you need working capital, not a shortcut.

What should you avoid when you're behind on PAYE and GST?

Some quick fixes make things worse. Avoid these traps:

• Stopping filing. Always file on time, even if you can't pay. Unfiled returns make the debt harder to resolve and are part of IRD's campaign focus.
• Delaying wages to pay tax. Your staff need to be paid correctly and on time, including the new minimum wage.
• Stacking expensive unsecured debt. Short-term online loans and merchant advances can cost far more than the tax debt they replace. If you've already gone down that road, read our guide on refinancing expensive short-term business debt.
• Going quiet. Silence is what moves you up IRD's escalation ladder.

Key takeaways

• GST and PAYE arrears are usually a cash flow problem, caused by tax money being used as working capital.
• Inland Revenue is running a focused campaign on overdue GST and employer debt and returns in 2026.
• Both attract 1% and 4% late payment penalties, and employer deductions can also attract 1% a month.
• Fix the cause as well as the balance: slow payers, seasonality, growth, margins or payroll costs.
• A separate tax account with automatic transfers stops the problem coming back.
• A property-secured loan can clear the arrears and add a working capital buffer in one go.

Get your tax and cash flow back on track

fundU is a direct private lender that lends $20,000 to $1m to New Zealand businesses, secured on property. We can pay Inland Revenue directly and include working capital in the same loan, with a decision from our own credit team.

Learn more about our working capital finance and IRD tax debt loans, or see if you qualify now. A lending specialist will call you back, and enquiring won't affect your credit score. Or call 09 875 4577.