Navigating IRD Tax Debt Recovery: Key Steps for Your Business

Many businesses are finding it challenging to manage unpaid taxes, and with the Inland Revenue Department (IRD) increasing its focus on collecting overdue amounts, this has led to more companies facing legal action or even the risk of being shut down. The financial pressures worsened for many during the Covid-19 period, acting as a catalyst for some of the ongoing struggles, that have not come right as the economy continues to be sluggish.

Understanding the Risks

The consequences of unpaid business tax are significant. Struggling businesses face:

• Late payment penalties and interest, adding to financial strain
• Insolvency proceedings and winding-up actions initiated by the IRD
• Personal liability for company directors, especially in relation to unpaid PAYE debt

With these risks in mind, it’s crucial for businesses to act early and seek advice on managing tax arrears before these issues escalate.

At Grayson Clements, we have helped clients manage their tax arrears by negotiating with the IRD for payment plans or settlements, reducing the amount owed through legislative analysis, and advising on statutory demands and winding-up proceedings.

Here are our top tips for businesses facing these challenges:

1. Act Early: Engage with the IRD as soon as possible to negotiate tax debt payment plans or relief options and avoid penalties or insolvency.
2. Review Cashflow & Viability: Assess your company’s financial position and create a realistic cashflow forecast to plan for payment arrangements.
3. Be Transparent and Conservative: Be honest about your financial situation when negotiating with the IRD. Overpromising can damage trust and make it difficult to resolve your tax debt.
4. Consider Voluntary Liquidation: If insolvency is unavoidable, initiating voluntary liquidation can help you influence the process and may help to mitigate personal risk.
5. Cash Payment: The IRD prefers lump-sum payments over instalment plans, so consider making a larger payment to resolve the debt faster.
6. Have The Right Team:  This is best done in collaboration with a good accounting advisor.

The Importance of Addressing Tax Debt Now

The IRD has recently announced a greater focus on debt recovery actions, particularly against businesses in high-risk sectors. As more businesses face financial distress and increasing tax arrears, it’s essential to act early to avoid penalties and more severe consequences like business liquidation.

We expect the IRD to continue tightening its approach to tax debt recovery, which could lead to an increase in personal liability cases for company directors, especially regarding unpaid PAYE debt. For businesses, staying proactive is crucial to avoid more severe repercussions.

How Grayson Clements Can Help

Grayson Clements offers expert guidance on managing business tax debt, including helping businesses negotiate with the IRD and advising on insolvency or voluntary liquidation options. We provide strategic advice to protect directors from personal liability and ensure your business can navigate these challenging times.

For more information or help with debt recovery and tax arrears management, contact our expert team.