The IRD are on the warpath chasing unpaid tax debt.
That comes as no surprise as we’re told that IRD arrears have ballooned from $4bil in 2020 to an expected $10bil in 2025 and therefore the IRD have said it had started calling customers with overdue GST and employer tax, even if they were at relatively small amounts, because it wanted to stop the debt getting larger. Since 9 October, it has been calling people with debt of at least $1000, that is between six months and five years old.
People who owed more than $10,000 would get a warning about the potential legal consequences with the IRD saying after a period of taking a gentler approach they are now getting more serious. As mentioned the IRD are calling people with unpaid tax debt and for those that choose not respond to the call, they could be visited and then if those options have not worked (resulted in payment or a payment arrangement) then the department could take money from peoples bank accounts or even start insolvency proceedings.
What does this mean for Kiwis that have unpaid tax debt?
Facing Reality – Why IRD Debt is Unpaid
Everyone knows that New Zealand has had dome very tough years from Covid and the shut-down to the economy that has never quite recovered – at least yet. Unfortunately many small and even larger businesses stopped paying the IRD in an effort to keep the businesses going until the recovery saw business increase again.
The reality is that for many business has not recovered fully yet and therefore the unpaid tax debt remains an issue. The IRD has been lenient for some time now, but that has stopped this year and they are on the warpath to collect those arrears.
It’s time to face reality and decide if you should enter into an arrangement with the IRD for the tax debt, take out separate tax debt finance or take the more drastic measure of restructuring or closing your business.
It’s Decision Time
While you can enter into an arrangement or get a new loan to clear your IRD arrears, you also need to look at the issues in your business.
We know that tax debt has to be repaid out of after-tax profits, and that makes it incredibly tough to catch up and stay current with your tax obligations if the business is not trading profitably. We also know that household costs are still climbing, and household budgets are under pressure too.
Furthermore we hear that real wages haven’t improved for many business owners (nor employees). In 2023, it was said 46% of business owners and 60% of sole traders weren’t paying themselves in order to keep their business running and that cannot last. You can survive on a very low income if you can see the light at the end of the tunnel, but you need to have some confidence that you will become profitable again.
Everyone needs to make enough money to provide themselves a lifestyle.
These decisions are not always easy as they can affect both you as the business owner, but also your family and the staff and their families too. Unfortunately when you have unpaid tax debt it’s either you make the decisions, or the IRD will make them for you.
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