One of the best ways to start 2025 is to ensure you are well-placed to meet your tax obligations despite the many other hurdles New Zealand’s economy may pose for your business.

While challenging economic conditions and tight cash flow may cause you to prioritise other payments over tax, your tax obligations must be met. Otherwise, you may face penalties, interest charges or legal action, making it harder for you to secure finance or grow your business.

Worse still, Inland Revenue (IR) may take steps to wind up your business and even hold you personally liable for unpaid company taxes.

Plus, the risk is now greater because IR has stepped up its collection activities after receiving $29 million for compliance in the last Budget.

IR moves into higher gear

IR Commissioner Peter Mersi says the additional funding allows IR to hire more people to investigate and undertake audits.

He adds that IR is taking a closer look at a range of areas including the hidden economy, the retail sector and trust compliance. It’s also examining electronic sales suppression tools, corporate restructures and debt owed by businesses that took out Small Business Cashflow Scheme loans to cover revenue loss from COVID-19.

“We’ve also started texting those with high debt to encourage them to get in touch about working things out,” says Mersi. “Debt collection and audits are also now getting underway in earnest.”

According to IR’s segment lead for significant enterprises Tony Morris, IR opened almost 2,000 audit cases in the July and September quarter last year, 55% more than in the same quarter in 2023.

During the 2024 September quarter, IR collected over $1.2 billion of overdue debt, 33% up on the same period in 2023. It also started liquidation processes against around 500 taxpayers, more than four times that in the same quarter in 2023.

Preventing tax debts

As you can see, it’s vital to avoid tax debts by adopting good cash flow habits that ensure you are always ready to meet your tax obligations. This can be done by:

  • Using digital tools and software to automate and streamline your business operations and provide you with calculations of your live tax position.
  • Separating your required tax payments, GST and PAYE (pay as you earn) from your cash flow (perhaps in a separate bank account) so the funds are available when needed.
  • Understanding your cash flow so you know when money will come in or go out and can better budget for tax payments.
  • Getting help from a tax professional or accountant.

If you’re in debt

If you have a tax debt, you should talk to IR early to avoid harsher outcomes.

IR encourages voluntary disclosures if you’ve made a mistake or can’t pay your debt. “A voluntary disclosure is a lot less costly for taxpayers than if they wait for us to come to them,” says Morris.

IR has a range of options to help taxpayers get back on track. One route is to set up an instalment arrangement to pay off your debt over time in manageable amounts, reducing the likelihood of incurring late payment fees.

If you set up an instalment arrangement, ensure it is realistic and allows you to meet with your current tax liabilities. Also review your cash flow cycle, invoicing processes and payment terms to ensure you can meet your new deadlines.

Serious financial hardship relief may be available for sole traders if paying the tax debt will render them unable to meet daily minimum living expenses, medical expenses or their children’s education costs.

If you have difficulty paying your IR, it may be time to reassess your operations to work out ways to ease your underlying financial challenges, perhaps by restructuring, cost-cutting or introducing new revenue streams.

Seeking support

ScotPac CEO Jon Sutton says businesses that seek professional financial guidance when dealing with tax debt will be best placed to recover.

“In the current high-cost environment, businesses are understandably nervous about disruptions to their cash flow and supply chains, particularly those operating on thin margins,” he says.

“The good news is that unprecedented support and guidance is available to businesses, starting with their brokers and key advisors.”

“ScotPac’s leading Invoice Finance and Boost Business Loan are two solutions that can provide SMEs with rapid cash injections to help manage both anticipated and unexpected events,” he adds.

Finding a cash flow finance solution

With end-of-financial year on the horizon and IR accelerating collections, cash flow is more important for New Zealand business owners than ever. Cash flow finance is a financial strategy that focuses on optimising your balance sheet, ensuring funds are always on hand. There are also several facilities that can help maintain your business’s financial health.

Improve cash flow with ScotPac

ScotPac has been helping New Zealand businesses survive and thrive with fast and flexible finance solutions for decades. Our commercial funding options include:

All our facilities are designed with the needs of New Zealand business owners top of mind. Plus, they’re all completely customisable, so you can benefit from a tailored funding solution that suits your business.

To find out more about our Invoice Finance, Trade Finance or Business Loan solutions or to discuss your goals for your business, get in touch with ScotPac’s lending specialists today.