UOMI (Use of Money Interest)
Use of Money Interest (UOMI) is the interest Inland Revenue charges when tax is paid late or underpaid, and pays when tax is overpaid. It applies mainly to provisional tax instalments and terminal tax — if your payments during the year fall short of what you actually owed, UOMI accrues on the shortfall from the relevant instalment date until you pay.
The underpayment rate is currently 8.97% per annum (simple daily), effective 16 January 2026 — down from 9.89% (from 8 May 2025) and 10.88% (from 16 January 2025). IRD revises the rate periodically in line with market interest rates, so always check IRD's current published rate before relying on a figure for planning.
A 'safe harbour' applies to taxpayers with residual income tax (RIT) under $60,000, and it does not depend on the provisional instalments having been paid in full or on time. It sets the date interest starts rather than waiving it: IRD charges interest from the day after the end-of-year tax due date, so pay the residual by that date and there is no UOMI — pay it late and UOMI accrues from that date on the unpaid balance. At RIT of $60,000 or more, interest instead runs from the day after the final instalment date. UOMI is separate from late-payment penalties, which apply on top: 1% immediately after the due date, plus a further 4% if the amount remains unpaid 7 days later.
How it works
UOMI is calculated daily on a simple-interest basis from the date a shortfall arose (typically a missed or underpaid provisional tax instalment date) until the date it's paid, which means the total interest bill grows the longer a shortfall sits unpaid — unlike a flat penalty, there's no fixed amount, only a running daily charge. IRD reviews the underpayment and overpayment rates periodically to track prevailing market interest rates, so the rate that applied at the start of a shortfall period isn't necessarily the rate that applies by the time it's resolved.
UOMI is entirely separate from late-payment penalties, and the two can both apply to the same unpaid amount at once: a 1% penalty applies as soon as a payment is overdue, with a further 4% penalty if it's still unpaid a week later, while UOMI accrues in the background across the whole period regardless of the penalties. Voluntary payments made before the terminal tax due date reduce the shortfall UOMI is calculated on, even if you can't pay the full amount owing.
The safe harbour rule is the main way smaller taxpayers avoid UOMI altogether, and it does not depend on the provisional instalments having been paid in full or on time — that condition was repealed from the 2022-23 income year. If your residual income tax for the year is under $60,000 and you are on the standard uplift method (or had no provisional tax obligation for the year at all), your whole residual income tax is treated as due in one instalment on your terminal tax date, so no UOMI runs on the in-year shortfall: you pay the remaining balance by the terminal tax due date without any UOMI charge, even though your actual tax liability turned out higher than what you paid during the year. The threshold is strictly 'less than $60,000', so landing exactly on $60,000 puts you outside it.
Example: how the safe harbour avoids UOMI
A sole trader has residual income tax of $58,000 for the year, under the $60,000 safe harbour ceiling, and is using the standard uplift method rather than estimating, AIM, or a GST ratio.
Because the safe harbour applies, the whole $58,000 is treated as due in one instalment on the terminal tax date, so no UOMI accrues even though the trader's actual tax liability came in higher than the instalments paid — the outstanding balance is simply paid by the terminal tax due date, interest-free. Pay it after that date and UOMI runs from the day after the terminal tax date, not from any earlier instalment date.
Had the trader missed an instalment during the year, the safe harbour would still apply: what a missed or short instalment costs is the late-payment penalty (1% immediately, plus 4% if still unpaid seven days later), not the UOMI protection.
Frequently asked questions
How is UOMI different from IRD's late payment penalties?
Penalties are flat, one-off charges (1% immediately after the due date, plus 4% more a week later) while UOMI is a daily-accruing interest charge that keeps growing the longer a shortfall remains unpaid, and both can apply to the same debt simultaneously.
Can I avoid UOMI by making voluntary tax payments during the year even if I'm not required to?
Yes — any voluntary payment reduces the outstanding shortfall UOMI is calculated on from the date it's paid, so making a payment as soon as you know you're behind limits the interest that accrues, even outside formal instalment dates.
Does IRD pay me interest if I've overpaid my tax during the year?
Yes — UOMI runs both ways, so if your payments during the year exceed what you actually owed, IRD pays UOMI on the overpaid amount, generally at a lower rate than the rate charged on underpayments.
Related Terms
Provisional Tax
Provisional tax is how self-employed individuals, companies, and others with significant non-PAYE income pay their expected income tax during the year, rather than as a lump sum after year end.
Residual Income Tax (RIT)
Residual Income Tax (RIT) is your total income tax liability for the year minus any tax already paid through PAYE, RWT, and other tax credits.
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