Changes to IRD interest rates

03

Sep

From 29 August 2019, the interest IRD charges when tax is unpaid or underpaid is increasing from 8.22% to 8.35%. This is often referred to as use of money interest (UOMI) AND applies to most tax obligations such as income tax, PAYE, FBT, withholding taxes and GST. The new rate comes as part of the Order in Council changes made on 1 July 2019.

Along with the use of money interest rates payable on underpayments of tax being increased, the rate of interest for overpayments of tax will decrease from 1.02% to 0.81%. Late payment penalties will also apply if a taxpayer does not pay on time. IRD late payment penalties work as such:

  • One per cent the day after payment was due.
  • An additional four per cent if the tax, including late payment penalties, is still outstanding after seven days.
  • A further one per cent every month after.

The last IRD interest rate change was in March 2017. The new rates are based on the floating first mortgage new customer housing rate and the 90-day bank bill rate. Both are determined by the market and can move independently of each other and the Official Cash Rate.

Taxpayers can be entitled to a deduction for their UOMI payments for the interest paid on underpayments of tax, provided the deduction is made in the year the UOMI is paid.


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