IRD Debt and Lending
For many business owners, tax debt is viewed as a problem to be managed when cash flow improves. However, when it comes to securing finance, outstanding obligations to Inland Revenue can become a significant barrier — not only because of the debt itself, but because of the position the IRD holds compared with other creditors.
One of the key considerations for lenders is that IRD claims can rank ahead of secured creditors in a business failure or liquidation scenario, with many instigated by the IRD. In simple terms, banks and finance companies that have security over business assets may find themselves behind the IRD when it comes to recovering funds. That is not a position any lender wants to be in.
For a bank assessing a mortgage application from a self-employed borrower, a commercial lending request, or finance for vehicles, machinery and equipment, an outstanding tax liability can raise questions about financial management, cash flow pressures and the overall risk profile of the borrower.
Lenders are not just looking at today’s numbers; they are assessing the sustainability of the business and the likelihood that obligations will continue to be met. A business carrying unresolved tax debt may appear to have less capacity to service new lending, even if revenue and trading history remain strong.
Business owners facing pressure from accumulated tax obligations should seek professional advice early. One option that can assist is tax pooling, which allows taxpayers to access funds to settle tax obligations while potentially reducing Inland Revenue's use-of-money interest and providing greater flexibility than dealing directly with overdue tax debt.
Maintaining a healthy relationship with Inland Revenue is an important part of overall financial management. For business owners seeking growth capital, refinancing, equipment finance or property lending, addressing tax obligations before they become a larger issue can significantly improve their lending position.