IRD payment plan or a loan: how to compare them properly

For most viable businesses that owe IRD, the real decision comes down to two routes: agree a payment plan with IRD, or borrow and pay IRD in full. People often frame it as “which is cheaper?”, but cost is only half the question. The other half is risk. This page compares both honestly, without quoting any rates.

What does each route actually cost?

An instalment arrangement has no fee, but it isn’t free. Use-of-money interest keeps running on the unpaid balance for the whole term. IRD calculates it daily and it doesn’t compound; it’s deductible for business purposes (IRD UOMI). We don’t print IRD’s current rate because it changes. Late payment penalties stop from the day the arrangement starts, as long as you keep to it (IRD).

A loan has a total cost of finance: interest and fees over the term. Every loan is priced on the business’s circumstances, so ask any lender for the total dollar cost in writing. Once IRD is paid, IRD’s penalties and interest on that debt stop.

The fair comparison is dollars over the same period:

	Arrangement	Loan
IRD interest	Keeps running until fully paid	Stops on settlement
IRD penalties	Paused while kept; can come back	Stop on settlement
Finance cost	None	Total cost of finance from your quote
Tax deductibility	UOMI deductible for business	Business loan interest is generally deductible; check with your accountant

Our arrangement vs loan cost check does this side by side once you enter your myIR figures and the total cost from any quote.

What are the risks of each?

Cost tables hide the thing that most often goes wrong: an arrangement breaking.

If IRD cancels an arrangement for default, its practice statement says monthly incremental penalties can be imposed retrospectively, as if the arrangement had never been entered into (SPS 18/04). Enforcement can then resume, and a broken plan can count against future relief. The longer the plan, the more months there are for something to go wrong.

A loan carries different risks. If it’s secured, the property is at stake. You need to keep up repayments and have a realistic exit. But a lender can’t cancel a loan because your next GST return was late, and IRD’s collection process is over once the debt is paid.

Risk	Arrangement	Loan
Cancelled if a payment slips	Yes	Normal loan default terms
Penalties charged back	Possible	No (IRD already paid)
IRD enforcement	Paused while kept	Ended
Credit reporting of company tax debt	Generally avoided while kept	Avoided once paid
Security over property	No	If secured
IRD approval needed	Yes	No

Want the comparison done with your numbers? Talk to a funder and ask for the total cost in dollars. No credit check to enquire.

Who usually suits an arrangement?

• Debts that are modest compared with monthly cash flow.
• A term of months rather than years.
• Steady, predictable income, with a buffer.
• A clean recent record with IRD.
• No hard deadline from a statutory demand or court.

Who usually suits a loan?

• Larger debts, or several tax types including PAYE.
• IRD has declined a plan or wants more than you can show (see payment plan declined).
• A previous arrangement has broken.
• A statutory demand or liquidation application has set a deadline.
• Credit reporting is close under the 2026 rules.
• You have property equity or steady turnover, and a clear way to repay.

Can you combine them?

Often that’s the smartest approach. A typical pattern: use a loan to clear the most dangerous part, such as PAYE (with its steep penalties and personal risk for directors) or the amount behind a statutory demand, then agree a short arrangement for the rest. Each route does what it’s best at. IRD’s relief form even asks companies whether they’ve tried getting a loan to pay the debt (IRD), so showing a partial loan can strengthen your arrangement request.

An illustrative example

Illustrative only. Not a real client and not an offer.

A Northland building supplies company owes IRD $140,000. IRD will consider an 18-month plan. Using its myIR history, the company estimates IRD interest over 18 months and compares that with the total cost of finance on a 12-month property-secured loan quote. The dollar figures are close. The deciding factor is risk: its income is lumpy, and a missed instalment in a slow winter could unwind the plan. It takes the loan, pays IRD in full, and plans to refinance to its bank after a year of clean tax filing.

What questions should you ask yourself?

1. What will IRD’s interest and penalties add over the plan’s full term?
2. What’s the total cost of finance on a real loan quote?
3. How likely is it that I’ll miss an instalment in my worst month?
4. Is there a deadline that IRD’s process won’t wait for?
5. If I borrow, how will I repay or refinance at the end?

Where does tax pooling fit in?

For provisional and terminal income tax, tax pooling is a third option that can sit alongside both. It works by buying date-stamped tax, so it addresses timing rather than affordability, and it doesn’t cover GST or PAYE. If most of your debt is income tax within the pooling timeframes, ask your accountant to price pooling as well before you decide. Our guide to choosing between an arrangement, pooling or a loan brings all three together, and loans to pay IRD debt explains how we assess applications.

Get a real number to compare

If you’re weighing an IRD payment plan against a loan, start a short enquiry and we’ll give you a clear total cost to put beside IRD’s figures. There’s no credit check to enquire, we don’t send your enquiry around a lending panel, and a real person will walk through both options with you. Accurate figures from myIR make the comparison meaningful.