How to pay off IRD debt with a business loan

Owing Inland Revenue is one of the most common reasons Kiwi business owners go looking for finance, and one of the most stressful. The good news is that IRD debt is a solvable problem. If you or your business own property in New Zealand, a property-secured business loan can often pay your tax debt out in full, stop the penalties building and give you a clean slate. This guide explains how to pay off IRD debt with a business loan, step by step, and how to work out whether it's the right move for you.

You're far from alone. In October 2025 Inland Revenue reported that New Zealand's tax debt to tax revenue ratio was 7.7%, and in January 2026 it announced a focused campaign on overdue GST and employer (PAYE) debt. Tax arrears have become a normal part of the business landscape after several tight years. What matters now is how quickly and cleanly you deal with them.

Can you use a business loan to pay off IRD debt?

Yes. Paying Inland Revenue is a genuine business purpose, and a loan secured on New Zealand property can pay IRD directly at settlement, clearing GST, PAYE, provisional tax and terminal tax arrears in a single payment.

The two things that matter are purpose and security. The loan has to be for the business, and it has to be secured on real estate: your home, a rental property, commercial or industrial premises, or property held by your company or family trust. Because a property-secured lender relies mainly on the property and your plan to repay, the tax debt itself doesn't close the door. At fundU we see IRD arrears every week and assess them case by case, alongside everything else going on in your business.

Why pay IRD out in one hit instead of chipping away?

Clearing the whole balance stops penalties and interest on that balance, removes the risk of enforcement and gives you back your headspace. Paying it down slowly can work, but every month the debt sits there, it keeps costing you.

Inland Revenue's late payment penalties are layered on top of each other:

• a 1% penalty the day after the due date
• a further 4% penalty on day 7 on whatever is still unpaid, including the first penalty
• for some tax types, such as employer deductions, a further 1% for every month the balance stays unpaid (GST and income tax, including provisional tax, are excluded from this monthly penalty)
• interest on the overdue tax, which keeps running until it's paid

There's also a time cost. Unresolved debt means calls, letters and, if they go unanswered, the possibility of a visit from IRD, deductions taken straight from your bank account, or bankruptcy or liquidation being considered. Every hour spent managing that pressure is an hour not spent on customers, staff or quoting new work.

Inland Revenue doesn't charge late payment penalties when the unpaid tax is $100 or less, and first-time late payers may be given a short grace period. For most owners carrying real arrears, though, penalties are already in play and interest is building daily.

What does IRD debt cost while it sits unpaid?

The short answer: more every week, and the costs come from several directions at once. This table summarises what applies to overdue tax according to Inland Revenue's published rules.

Charge or consequence	When it kicks in	What it applies to
Initial late payment penalty	1% the day after the due date	Overdue tax generally
Second late payment penalty	4% on day 7, on the unpaid balance including penalties	Overdue tax generally
Monthly late payment penalty	1% each month the balance remains unpaid	Some tax types, such as employer deductions (not GST or income tax)
Interest on overdue tax	From the day after the original due date	Unpaid tax
Collection action	When contact and arrangements don't resolve the debt	Visits, bank deductions, bankruptcy or liquidation consideration

A business loan costs money too, so the honest comparison isn't "loan versus free". It's a structured loan with a clear end date versus an open-ended debt that keeps growing and carries enforcement risk. Your accountant can help you run those numbers for your own situation, and our lending team will price your loan on your individual circumstances.

How to pay off IRD debt with a business loan: step by step

Here's the process most owners follow, from first login to a nil balance.

1. Log in to myIR and get the full picture. Check every account: GST, employer deductions, provisional tax, terminal tax and any others. Write down the tax, penalties and interest for each so you know the true total.
2. File any overdue returns. A payoff figure is only real once every return is in. Inland Revenue's 2026 campaign targets overdue returns as well as overdue debt, so getting them filed also shows good faith.
3. Talk to Inland Revenue. Let them know you're arranging finance to clear the balance and give a realistic timeframe. Engaging early is far better than going quiet.
4. Work out how much to borrow. Add the arrears, any tax falling due in the next month or two and a modest working buffer. More on sizing below.
5. Identify your security property. Note the address, a rough value, who owns it and what's owing on any existing mortgage.
6. Make an enquiry with a direct lender. With fundU, the initial assessment doesn't need financial statements or tax returns. A lending specialist calls you back to talk through the purpose, the property and the exit.
7. Receive terms, then valuation and legal work. If you go ahead, a registered valuer confirms the property value and your lawyer handles the mortgage documents.
8. Settle and pay IRD directly. At settlement the funds go straight to Inland Revenue against the right tax types and periods, with any working capital paid to your business account.
9. Confirm the nil balance and start your exit plan. Check myIR, save the confirmation and put the repayment plan to work from day one.

For a closer look at how the steps run at fundU, see how our process works.

What should you tell IRD while the loan is being arranged?

Tell them the truth: you're arranging finance to clear the debt, and roughly when you expect it to settle. Inland Revenue's stated approach is to contact customers first and work towards full payment or an instalment arrangement, so a clear plan from you usually lands well.

A few practical moves help while the loan comes together:

• Keep filing current returns on time, even while the arrears are outstanding.
• Keep paying current PAYE and GST where you possibly can, so the balance doesn't grow.
• If the loan will take a few weeks, consider a short instalment arrangement in myIR as a stopgap. Our guide to an IRD instalment arrangement vs a business loan explains how the two can work together.
• Keep a record of who you spoke to at IRD, when, and what was agreed.

If you've already had letters and calls go unanswered, it's not too late. Our guide on what happens if you ignore IRD debt lays out the escalation path and how to get back in front of it.

How much should you borrow to clear IRD debt?

Borrow enough to clear the debt completely and stay current, not just the headline arrears figure. Under-borrowing is a common mistake: you pay off the old balance, then fall behind again on next month's return because cash flow is still tight.

A sensible loan amount usually covers:

• the full overdue balance, including penalties and interest, calculated to your expected settlement date
• tax that falls due in the next month or two, such as your next GST return, this month's PAYE or an upcoming provisional tax instalment
• any other pressing creditor that would otherwise undo the good work
• a modest working capital buffer so you're not running on empty

Equally, don't borrow more than you need. fundU lends $20,000 to $1m, and our team will help you land on an amount that clears the problem without loading the business with extra debt.

Example scenario

A Waikato earthmoving company owed around $140,000 across GST and employer deductions after a wet winter and a major customer paying 90 days late. The director's family home was worth about $950,000 with a bank mortgage of around $420,000, and the bank wasn't willing to lend more while the tax was overdue.

A second mortgage of $185,000 sat behind the existing bank loan, so the bank lending stayed in place. At settlement, about $150,000 went straight to Inland Revenue, covering the arrears plus the next GST return, and $35,000 went to the business for fuel and wages. The loan was set up with capitalised interest, so there were no scheduled monthly repayments while the business recovered. The exit was the late customer payment plus a refinance to a bank once the company had a clean run of tax payments. This is an illustrative example only.

What property can you use as security?

Most types of New Zealand real estate can be used, and the property doesn't have to be owned by the business itself. Options include:

• your own home, even if it already has a bank mortgage
• a rental or investment property
• commercial or industrial premises, including the building your business trades from
• land or lifestyle property, considered case by case
• property owned by your company or your family trust
• property owned by a supporting party, such as a family member acting as guarantor

If the property is mortgage-free, or if you'd like to refinance the existing lender out, a first mortgage may suit. If you'd rather keep your bank loan in place, a fast second mortgage sits behind it. The bank loan stays exactly as it is, and the second mortgage is repaid through your exit plan.

What will a lender want to see?

Less than most people expect. For a first look, fundU mainly needs to understand the property, the purpose and the exit. Have these ready and things move faster:

• your IRD account summary from myIR, showing each tax type and balance
• the address of the security property, a rough value and any existing mortgage details
• photo ID for each borrower, director and guarantor
• recent business bank statements
• a short explanation of how the tax debt built up and what has changed since
• your plan to repay the loan, such as a sale, a refinance, a contract payment or cash flow
• an accountant's letter, if you have one handy

We don't ask for financial statements or tax returns at the initial assessment, which is useful when your accounts are behind because of the very pressure that created the tax debt. See our low doc business loans page for the kind of alternative evidence we can work with.

How do you stop IRD debt building up again?

Clearing the balance fixes the symptom. Keeping it clear means changing how tax money moves through the business. The owners who stay out of trouble usually do some version of the following:

• Open a separate tax account. Every time a customer pays, move the GST portion across. Every payroll, move the PAYE and KiwiSaver deductions across. Treat that account as IRD's money, because it is.
• Put due dates in your diary. Use myIR reminders and your accounting software so nothing sneaks up on you.
• Review your provisional tax option. The standard option doesn't suit every business. Our guide to provisional tax cash flow planning walks through the alternatives.
• Fix the underlying cause. If the debt came from slow-paying customers, thin margins or a seasonal gap, address that directly, or the same squeeze will return.
• Check in monthly. A ten-minute look at myIR and your tax account each month catches problems while they're small.

Our guide to the GST and PAYE arrears cash flow fix goes deeper on building these habits.

Key takeaways

• A business loan secured on New Zealand property can pay IRD directly and clear GST, PAYE and income tax arrears in one payment.
• Inland Revenue charges a 1% penalty the day after the due date and a further 4% on day 7, plus interest, and some tax types attract an extra 1% every month.
• Get the full picture in myIR, file overdue returns and talk to IRD before you borrow.
• Borrow enough to clear the arrears and stay current, but no more than you need.
• A first or second mortgage over your home, a rental, commercial property or trust property can all work as security.
• Stop the debt returning with a separate tax account, diarised due dates and a fix for the underlying cash flow gap.

Ready to clear your IRD debt?

Good businesses fall behind with tax for all sorts of reasons, and a clean slate with Inland Revenue is often closer than it feels. fundU is a direct private lender, so our own credit team assesses your application and makes the decision, and funding can happen in as little as 24 hours once approved in some cases.

Learn more about our IRD tax debt loans, or see if you qualify now. It's free, takes a couple of minutes and doesn't affect your credit score. Prefer to talk it through? Call us on 09 875 4577.