Inland Revenue steps up collection of overdue tax debt and returns

Inland Revenue has announced today that it is increasing its focus on taxpayers who have overdue tax debt or outstanding returns, particularly GST and employer-related debt.

Its current campaign targets taxpayers who have already progressed through Inland Revenue’s billing cycle but have not responded or taken steps to resolve their position.

For businesses with overdue tax, the message is clear: Inland Revenue intends to make further contact and may escalate its collection activity where taxpayers continue not to engage.

However, engaging with Inland Revenue does not mean that you must conduct an unexpected and unprepared discussion about your tax affairs. It is important to understand both Inland Revenue’s powers and your options.

What will Inland Revenue do?

Inland Revenue intends to use a three-step contact process:

1. It will contact the taxpayer directly to discuss the outstanding debt and overdue returns. The debt may be resolved by paying it in full or agreeing to an instalment arrangement.

2. If the taxpayer does not answer, Inland Revenue will leave a message asking them to return the call.

3. If there is still no response, Inland Revenue will make one final contact attempt but will not leave another message.

Where these attempts do not result in a satisfactory outcome, Inland Revenue may escalate its collection activity.

This could include:

• a visit from Inland Revenue’s Community Compliance team; or

• issuing a deduction notice to recover money directly from the taxpayer’s bank account where other collection options are not considered appropriate.

If Inland Revenue visits your business

An unexpected Inland Revenue visit can be unsettling. You should remain polite and cooperative, but you do not need to enter into a detailed, unprepared discussion about your financial position on the spot.

Start by asking the officer to:

• identify themselves and provide their contact details;

• explain the purpose of the visit;

• confirm whether the visit is an informal debt discussion or whether Inland Revenue is exercising a formal statutory power; and

• identify any statutory authority or formal notice on which they are relying.

  
  

Where the visit is simply to discuss an overdue debt, you have the option to manage the situation yourself, but it is generally reasonable to say:

Our tax affairs are managed with our accountant. I am not in a position to discuss the account without advice Please provide your contact details and we will arrange for our accountant to contact you promptly.

You can also ask that the discussion be rescheduled so your accountant or tax adviser can participate.

This is not the same as ignoring Inland Revenue. It is a controlled response that allows you to obtain advice and make sure any information supplied is complete and accurate.

However, do not assume that every visit is informal. Inland Revenue has statutory powers to obtain information and access property in certain circumstances. If an officer says they are exercising a formal power, ask to see the relevant authority and contact your tax adviser immediately.

Do not obstruct a formal Inland Revenue process

There is an important distinction between:

• declining to participate immediately in an informal debt discussion; and

• obstructing Inland Revenue when it is lawfully exercising a statutory power.

  
  

You should not conceal or destroy records, provide misleading information, interfere with an authorised officer or disregard a formal notice.

If there is any uncertainty about the officer’s authority, avoid an argument at the premises. Record the officer’s details, ask for the legal basis of the request in writing and contact your accountant or lawyer promptly.

The worst response is no response

Receiving a call or message from Inland Revenue can be uncomfortable, particularly when cash flow is already under pressure.

However, ignoring the issue will generally reduce the options available and increase the risk of stronger enforcement action, including:

• bank or wage deductions;

• further collection visits;

• formal demands;

• insolvency action;

• increased penalties and interest; and

• greater disruption to the business.

Inland Revenue is often more willing to consider a manageable payment arrangement when a taxpayer engages early, provides accurate information and continues to meet any agreed obligations.

An instalment arrangement does not necessarily remove interest or penalties, but it can provide an agreed pathway for bringing the debt under control.

You do not have to answer complex questions without advice where their visit is a voluntary compliance and debt-recovery interaction, but you should acknowledge Inland Revenue’s contact, obtain the officer’s details and arrange a prompt and informed response.

Do not overlook outstanding returns

It is also important to file any overdue returns, even where the resulting tax cannot be paid immediately.

Until the returns are completed, the true amount owing may be unclear. Inland Revenue may also issue estimated assessments, and penalties can continue to arise while filing obligations remain outstanding.

Completing the returns allows the taxpayer, their accountant and Inland Revenue to work from accurate information when considering payment arrangements or other available relief.

What should you do now?

If you have overdue returns or tax debt, take action before Inland Revenue escalates the matter:

• Check your myIR account for outstanding returns, balances and correspondence.

• Complete any overdue GST, income tax, PAYE or other returns.

• Review what you can realistically afford to pay.

• Contact Inland Revenue or ask your accountant to assist with an instalment proposal.

• Respond promptly to calls, letters and myIR messages.

• Make sure you can meet both the proposed repayments and your ongoing tax obligations.

A payment proposal needs to be realistic. Agreeing to repayments that cannot be maintained may simply defer the problem.

We can help

Tax debt is often connected to a wider issue, such as declining profitability, uneven cash flow, unexpected tax liabilities or a failure to set aside funds as tax obligations arise.

Business Studio Innovators can help you:

• confirm the amount owing and whether all returns are up to date;

• review your cash flow and ability to make repayments;

• prepare a realistic instalment proposal;

• communicate with Inland Revenue where appropriate; and

• establish systems to better manage future tax payments.

  
  

The key message is simple:

Do not ignore overdue returns or tax debt—but do not feel pressured into conducting an unprepared discussion either.

Engage promptly, obtain advice and put a realistic plan in place before stronger collection measures are taken.

This article provides general information only and does not constitute legal, tax or financial advice. Inland Revenue’s powers and the appropriate response will depend on the circumstances and the nature of any notice or visit. Specific advice should be obtained before acting.