Knowing the consequences and options available to you when making late tax payments is important in avoiding any nasty late payment penalties

Upon realisation of a looming late payment, making contact with Inland Revenue is recommended in the first instance. More often than not an instalment plan can be organised to help ease the pressure of payment and in turn avoid those late payment penalties.

The late payment grace period

The Inland Revenue offer a grace period for late payments in some instances. To qualify for a late payment grace period you must have paid all your taxes on time for the last two years. If you qualify for said grace period Inland Revenue will send you a letter advising you of the grace period along with the new date to make payment. If payment is made by the new date no late payment penalty will be charged. Late payment penalties will begin to accrue from the date after the due date.

Upon receiving a grace period you must then pay your taxes on time for the next two years before qualifying for another grace period.

Late payment penalties

In instances where late penalties are added, they are done so in stages whereby the longer a payment remains overdue, the more penalties will be added. The stages for adding penalties are:

• 1% the day after the due date
• 4% seven days later
• 1% each month the payment remains overdue

If you organise an instalment plan prior to the due date only the first 1% penalty will be charged. If you set up a plan on or after the due date the associated penalties will apply up to the date the plan was arranged. Once a plan has been established no further penalties will be charged, assuming you keep to the plan.

Non-payment penalties

If you haven't paid your PAYE on time, Inland Revenue will remind you about the overdue amount. If you haven't arranged a plan within a month, they will add a 10% penalty to the unpaid amount.

This 10% penalty applies each month until you pay the amount in full or enter into an instalment plan with the IRD. Once an instalment plan has been arranged no further monthly penalty will apply and IRD will reduce the penalty for that given month to 5%, assuming you keep to the plan.

The maximum penalty applied for non-payment is 150% of the amount owing the day prior to the first non-payment penalty.

For more information on late payments and managing financial debt visit the IRD website or get in touch with us to further discuss your options