How to survive the NZ tax crackdown 2025

(tax crackdown)

Kia ora Accounting fans!

We’re back and it’s 2025! Happy new year!

Earlier in the year, the IRD had announced that they would be tightening up the operations of their compliance team. This means that more tax payers are getting follow up calls from the IRD. Folks with outstanding debt with the IRD (which also includes student loans) are being especially targeted in this crackdown.

In the years leading up to 2025, IRD had its hands full dealing with COVID and the tax reliefs in the COVID and post-COVID period. Now that things have calmed down on that end, the IRD is back with a vengeance. The kid gloves have come off and IRD is looking to claw back everything that is owed to the public services.

Unsurprisingly, this has worried many tax paying kiwis about the IRD auditing their books. Not to worry, many years in dealing with the IRD has taught me a few tips on how to handle yourself during a period of heightened scrutiny by the tax authorities.

Have a separate bank account for your business

I mean, obviously right? But you’d be surprised how many business owners run their business off the back of their hand. Not to mention all those self-employed kiwis who mix their personal and business funds together. Yikes!

The easiest thing you can do as a business owner is to have a separate bank account for your business transactions. This can be as easy as setting up a new bank account in your name if you are a sole trader. This way, if IRD asks for a history of your transactions, you can easily send them the bank statements that relate to your business operations.

If you have been mixing your business and personal transactions together, then you should print out your transaction history and start highlighting the items that are business transactions so that the IRD can identify them in an audit. And then open a business bank account and do things correctly from here on out!

Keep a record of your business during the tax crackdown

The easiest way to do this is by using an accounting software, like Xero, MYOB or Pocketsmith. Make sure you use a software that can connect to your bank account’s bank feeds so that you are able to code your transactions in real time.

Don’t worry too about getting the coding right, just make sure that you record your income correctly and that you’re claiming expenses that relate to your income.

Read this article to learn more about working out if an expense is tax deductible.

If you’re feeling cheap, you can also use a spreadsheet to keep track of your business transactions. As long as you’re keeping track of things, you will be fine. In an audit, IRD will cross check your bank statement from #1 above against the records that you’ve kept. So long as everything matches up, you’ll be in the clear.

The IRD is your friend!

Now, I know that nobody loves taxes. But taking an antagonistic attitude against the IRD and its officers is a bad, BAD idea. I’ve dealt with the IRD for almost a decade now and in my experience, the IRD is a very easy organisation to work with (certainly easier than the Accident Compensation Corporation! But that’s a different story). Antagonising the IRD will almost certainly guarantee that you’ll get a check up from them every tax year.

So how do you go about developing a good relationship with the IRD? Easy! When the IRD asks you for things, you give it to them promptly.

If they ask for your bank statements – you give it to them.

If they ask for invoices and receipts – you give it to them.

They want your business’ financial statements – you give it to them.

Remember that you want to be giving the things in a manner that is legible and easy to understand. If you maintain your books on a spreadsheet with no formatting, poor formulas and multiple redundant sheets, then they will press you for more information. Similarly, if you present your bank statements with illegible scribbles, coffee stains and water damage, expect a stern response from the IRD.

By the end of the day, the IRD officers are human. If you make it easy for them to do their job, they will make your life easy as well. Making things difficult for them will only work against you, so keep them happy and they’ll keep you happy!

Get an accountant to help you through the tax crackdown

Once again, I’m biased here. But in the years I’ve been practicing as an accountant, I’ve seen a lot of cases where clients have sometimes said or done the wrong things when dealing with the IRD and made things worse for themselves. An accountant will talk to the IRD for you. They will answer any questions the IRD has about your tax affairs. Most importantly, they will stand up for you and make sure that you get the best outcome when it comes to taxes.

Admittedly, an accountant isn’t cheap. However, paying IRD penalties is usually more expensive. So getting an accountant is a bit of an upfront cost that typically saves you in the long run. That being said, prevention is better than cure. Getting an accountant at the very beginning of your business will increase your chances of surviving a tax crackdown. If you’re only just thinking of getting one now… well, we’re not miracle workers but having us onboard is still heck of a lot better than doing it on your own!

You’ve nothing to worry about!

If you’re reading this, then I’m confident you are a good, honest business owner who isn’t trying to cheat our community of your contribution. So long as you’ve been paying taxes on time, there usually isn’t too much to worry about.

If you accidentally claimed an extra coffee or two against the business, or claimed a bit more fuel expenses than you should, that sort of thing shouldn’t worry you. These things are usually too insignificant for the IRD to pay notice to. After all, its an honest mistake, and IRD officers are human too and are generally quite forgiving of small errors such as these.

In the rare case that you get audited – don’t panic. In fact, in our next article, we’ll talk about what to do in case of a tax audit.

Stay positive!