New Zealand Tax Interest Rate Changes 2025-2026:
Use of Money Interest (UOMI) What You Need to Know
Inland Revenue applies use-of-money interest (UOMI) to tax overpayments and underpayments to encourage correct and timely payment of tax.
While Inland Revenue introduced new UOMI interest rates from 16 January 2025, those rates were further updated during 2025. For the 2025–2026 financial year, the most recent rates apply.
These changes affect all taxpayers, including individuals, sole traders, landlords, and businesses.
Here’s a comprehensive breakdown of the current tax interest rates, what has changed, and practical guidance for managing your exposure.
New Use of Money Tax Interest Rates Explained (UOMI)
Interest on Underpaid Tax – Underpayment Interest Rate:
From 8 May 2025 (and applying throughout the 2025–2026 tax year), the tax underpayment interest rate is 9.89%.
- This is a reduction from 10.88%, which applied from 16 January 2025 to 7 May 2025
- The earlier rate replaced the pre-January 2025 rate of 10.91%
This interest applies when tax is not paid by the due date and continues to accrue daily until the outstanding balance is cleared..
Interest on Overpaid Tax – Overpayment Interest Rate:
- This is down from 4.30%, which applied from 16 January 2025
- It was previously 4.67% before January 2025
This reflects the relatively low return Inland Revenue pays on excess tax held.
Tax Interest Rate Overpayment and Underpayment Example:
A small business underpays $10,000 in tax for a full year during the 2025–2026 tax year:
- $10,000 × 9.89% = $989 in interest
If the same business overpays $10,000 for a year:
- $10,000 × 3.27% = $327 in interest
This difference highlights why underpayments can quickly become costly, while overpayments deliver relatively modest returns.
Context Behind the New Zealand Tax Interest Rate Changes
Inland Revenue sets UOMI using statutory formulas designed to reflect wider economic conditions:
- The underpayment rate is based on the Reserve Bank’s floating first mortgage new-customer housing rate plus 2.5%
- The overpayment rate is the greater of 0% or the Reserve Bank 90-day bank bill rate minus 1%
These formulas are reviewed regularly, which means interest rates can change multiple times within a year.
The ongoing gap between underpayment and overpayment rates is deliberate and is intended to discourage taxpayers from using Inland Revenue as a form of low-cost finance.
Practical Advice for Taxpayers
Plan Provisional Tax Payments Carefully
Sole traders, contractors, landlords, and businesses paying provisional tax should:
- Review cashflow forecasts regularly
- Consider tax pooling to reduce exposure to underpayment interest
- Reassess provisional tax estimates if income changes materially during the year
Engage Early with Inland Revenue
If you are unable to pay tax on time:
- Contact Inland Revenue early to discuss a payment arrangement
- Interest will continue to accrue, but proactive engagement can help prevent penalties and escalation
Monitor Your IRD Account
Regularly reviewing your myIR account helps ensure:
- Payments are allocated correctly
- Errors are identified early
- Overpayments or underpayments are managed before interest compounds
Frequently Asked Questions (FAQs)
Interest will apply from the due date. Penalties may also apply if the debt remains unpaid.
Tax pooling, accurate provisional tax estimates, and early payment arrangements can significantly reduce interest costs.
The system is designed to discourage over- and under-paying tax and to prevent Inland Revenue being used as a banking facility.
Yes. Inland Revenue reviews rates regularly, and further changes during or after the 2025–2026 year are possible.
Interest is generally non-negotiable unless an error on Inland Revenue’s part caused the charge. However, penalties might be waived in exceptional circumstances. Professional advice is recommended.
Avoid Unwanted Penalties and Interest – Get Help from an Expert!
Understanding and managing these interest rate changes is essential for all taxpayers in New Zealand. Whether you’re an individual, contractor, or business owner, staying informed about your obligations and utilising available resources can help minimise financial impacts.
A qualified and experienced Chartered Accountant (such as the team at ABA Chartered Accountants), can help you navigate and plan your taxes effectively to avoid unnecessary penalties and interest.
Get in touch today to discuss how we can help you manage your taxes. We offer a full range of Accounting & Taxation Services to assist individuals and business owners with all their accounting and tax requirements.
For further information on the New Zealand interest rate changes, visit Inland Revenue’s official page on penalties and interest.
