Should I borrow to pay my GST bill?

GST is the tax that feels like your money right up until it’s due. It sits in the account, gets swept up into wages, rent and stock, and then the 28th arrives. Mr gets asked whether borrowing to pay it is a smart move or a slippery slope. The honest answer: it can be either.

How does GST timing work in New Zealand?

If your business turned over (or expects to turn over) $60,000 or more in 12 months, you must be registered for GST. You then charge 15% GST on most sales, claim back GST on most business costs, and pay the difference to Inland Revenue each period.

Your GST return and payment are due on the 28th of the month after your period ends, with two exceptions:

• the period ending 31 March is due 7 May;
• the period ending 30 November is due 15 January.

How often you file depends on your sales and your choice:

Filing frequency	Who can use it
Monthly	Anyone; required if sales are over $24 million in any 12 months
Two-monthly	Sales under $24 million
Six-monthly	Sales under $500,000

The tax due dates tool shows your exact upcoming dates.

When does borrowing for GST make sense?

Mr’s three green lights:

1. The gap is temporary and explainable. A big customer is paying in 60 days instead of 20. A large one-off sale created a big GST period. A seasonal business hit its quiet patch.
2. The business is profitable. Margins cover costs and tax over a normal cycle.
3. The alternative costs more. Late GST attracts a 1% penalty the day after the due date and a further 4% on the seventh day, plus use-of-money interest, and damages your standing with IRD.

When all three are true, a short loan that pays the GST on time can be the tidy option. Funds can often go straight to IRD.

When is it a warning sign?

Red flags that borrowing will only delay the problem:

• You’ve needed help with GST more than once or twice in a year.
• GST collected is routinely used to pay wages or suppliers.
• Your prices haven’t moved while costs have.
• There’s already overdue GST from earlier periods.

In those cases, the conversation is about cash flow and pricing first, finance second. A loan may still be part of the fix — for example, clearing the backlog while you change habits — but it shouldn’t be the whole fix.

What are the alternatives to a loan?

Option	Good for	Watch out for
File on time, pay late with an IRD arrangement	Larger gaps over several months	Interest can still apply; must keep to it
Ask a slow customer for part payment	One-off delays	Needs a good relationship
Change to the payments basis (if eligible)	Businesses invoicing ahead of being paid	Talk to your accountant first
Change filing frequency	Smoothing lumpy periods	Must be eligible; affects provisional tax
Short-term business loan	Temporary, explainable gaps	Cost; doesn’t fix a habit

Read what’s an instalment arrangement and will a lender care? if you’re weighing up the first row.

How do I stop GST catching me out?

• Open a separate GST account and move a slice of every deposit into it — when all your sales are standard-rated, three twenty-thirds of GST-inclusive takings is the GST portion (less whatever GST you’ll claim back on costs).
• Diary every due date, including the 15 January and 7 May exceptions.
• Plan the Christmas period. The 15 January due date arrives just as many businesses reopen. Our Christmas shutdown cash plan covers this.
• Review pricing if GST keeps being tight; it often means margins are too thin.

If a GST bill is due soon and you’d like to see what’s possible, ask a specialist now — it doesn’t involve a credit check.

An illustrative example: the one big period

This case is invented.

A Dunedin engineering firm usually files GST two-monthly with fairly even bills. In one period it invoices a large one-off job for a council contractor. The GST on that invoice is due at the end of the following month, but the contractor pays on 60-day terms. The GST bill is several times the usual, and the money to cover it won’t arrive for another month.

This is a textbook temporary gap:

• the cause is a single, explainable invoice;
• the customer is reliable and the payment date is known;
• the business is profitable and current on all other tax;
• the alternative is late GST, with penalties starting the next day.

A short loan, repaid when the contractor pays, keeps the firm on time with IRD. Another option is filing on time and asking IRD about an arrangement for that period — worth comparing on cost. A longer-term fix might be talking to the accountant about whether the payments basis would suit, if the firm is eligible.

How Mr would set aside GST each week

A simple routine that stops GST becoming a monthly surprise:

1. Open a separate savings account at your bank, labelled “GST — do not touch”.
2. Every week, transfer the GST portion of that week’s takings, less an estimate of GST on your costs.
3. Review at the end of each period — top up if it’s short, leave the surplus if it’s over.
4. Pay the return from that account on or before the due date.
5. Repeat for PAYE if you employ staff.

It takes ten minutes a week. Within a couple of periods, GST stops being a fight for cash and becomes just another transfer.

Ask Mr about your GST bill

Tell us the GST amount, when it’s due and what’s caused the gap. There’s no credit check to ask, your details aren’t forwarded to a crowd of lenders, and a real person will tell you straight whether a loan is the right tool.

Please be accurate about any earlier GST that’s still overdue — it changes which options fit. See if a loan for your GST bill makes sense.