IRD Use-of-Money Interest (UOMI) Rates

Use-of-money interest compensates whichever side was out of pocket. If you paid Inland Revenue less than you owed, IRD charges you the underpayment rate for the period it was short. If you paid more than you owed, IRD pays you the overpayment rate until the credit is refunded or transferred. It is not a penalty and it is not discretionary — the rates are fixed in regulations made under section 120H of the Tax Administration Act 1994.

Interest you pay IRD is deductible in the year you pay it, and credit interest IRD pays you is income you have to return. That makes the effective cost and benefit of UOMI a little lower than the headline rates.

• Provisional tax. If you use the estimation method and under-estimate, interest runs from each instalment date on the shortfall. Using the standard uplift method and paying each instalment in full and on time protects you — see the provisional tax calculator.
• Terminal tax. Interest runs from the day after your terminal tax date until the balance is paid. Work the balance out with the terminal tax calculator.
• The $60,000 safe harbour. If your residual income tax for the year is $60,000 or less and you paid the standard uplift amount at each instalment date on time, no UOMI is charged on the terminal-tax shortfall. You still have to pay the balance by the terminal tax date, and late payment penalties still apply if you do not. First-year filers can check their position with the first-year safe harbour calculator.
• Reassessments and amended returns. Where an amendment increases the tax for an earlier year, interest generally runs from the original due date for that year, not from the date of the amendment.
• Refunds. Credit interest generally starts the day after the latest of the due date, the date of the payment that created the credit, and the date you filed the return that established it.

The annual rate is divided by 365 and applied to the outstanding balance for each day it is outstanding. Nothing compounds, so a balance left for two years costs exactly twice what it costs for one. Interest starts the day after the original due date and stops on the day the balance clears.

At the current 8.97% rate, every $10,000 of unpaid tax accrues $2.46 a day — about $74 a month. IRD charges debit interest only where the outstanding amount, including penalties, is more than $100.

Because the rate changes part-way through most long overdue periods, the arithmetic has to be split at each change date and each stretch charged at the rate that was in force. The penalty calculator does that split automatically and shows the working.

Late payment penalties are a separate charge and they stack on top of the interest: 1% of the unpaid tax the day after the due date, and a further 4% of what is still owing — including that 1% — at the end of the seventh day after the due date. The old incremental 1%-a-month penalty no longer applies to income tax or provisional tax for the 2017-18 and later income years.

A late filing penalty is different again: a flat $50, $250 or $500 depending on your net income, charged on a late IR3 or IR4 return after IRD has given you 30 days' notice.