# IRD GST Payments Basis vs Invoice Basis & Use of Money Interest (UOMI) Guide for NZ Sole Traders (2026–27)

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- **Jurisdiction / Region:** NZ
- **Last Verified:** Sun Nov 01
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- **Summary:** IRD GST Payments Basis vs Invoice Basis and Use of Money Interest (UOMI) guide for NZ sole traders: $2M cash threshold, GST 101A boxes & avoiding IRD interest.

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# IRD GST Payments Basis vs Invoice Basis & Use of Money Interest (UOMI) Guide for NZ Sole Traders (2026–27)

**Short answer: Under Inland Revenue (IRD) rules for 2026–27, avoiding Use of Money Interest IRD (`UOMI`, charged at 10.88% per annum on underpaid tax) starts with selecting the GST *Payments Basis (Cash Basis)* on form `GST 101A` if your annual taxable turnover is $2 million or less (excl. GST). The Payments Basis ensures you only pay 15% GST to IRD after the client pays your invoice, while paying your three Standard Uplift provisional tax instalments on time locks in IRD's safe-harbour protection under $60,000 residual income tax.**

> **⚡ Instant NZ Sole Trader GST (`15%` / `3/23`), Provisional Tax & UOMI Shield Toolkit ($NZD):** Calculate your 2026–27 IRD income tax, ACC levy, and 15% GST in the interactive **NZD Tax & GST Calculator** right below, save your first 5 NZBN invoices, dockets, or ute trips in the **[iCloud Web Workspace (5 Free Saves)](/keel/workspace/)** (or click **🔗 Embed / CSV Template**), explore the **[AU/NZ Tradie & Sole Trader App Store Edition](/keel/cpp/australia-nz-sole-traders/)** and **[No-Subscription Bookkeeping Edition](/keel/cpp/no-subscription-bookkeeping/)**, or **[Download Keel Free on the App Store ($0/mo)](https://apps.apple.com/us/app/keel-invoice-maker-receipts/id6786659713?ppid=8470921a-830e-47a3-abf5-bf0b1cce24ac)** (`au-nz-tradies`).

Every self-employed Kiwi builder, sparkie, plumber, roofer, and contractor registered for **15% GST** faces two recurring Inland Revenue traps: accidentally selecting the **Invoice Basis (Accrual)** when registering in **myIR**—forcing you to pay 15% GST on invoices a main contractor hasn't paid yet—and getting hit with **IRD Use of Money Interest (`UOMI`)** when a slow payment delays your GST or provisional tax instalment.

Below is the official **[Inland Revenue (IRD) GST accounting basis](https://www.ird.govt.nz/gst/preparing-for-gst/choosing-an-accounting-basis)** and **[Use of Money Interest (UOMI)](https://www.ird.govt.nz/managing-my-tax/penalties-and-interest/interest-on-overpayments-and-underpayments)** breakdown for the **2026–27 New Zealand tax year (1 April 2026 – 31 March 2027)**. For related New Zealand guides, see [how to file a GST return in NZ](/keel/nz-how-to-file-gst-return/), [provisional tax explained](/keel/nz-provisional-tax/), and [NZBN invoice and docket book rules](/keel/nz-nzbn-invoice-and-docket-book-rules-ird/).

## How do IRD's 3 GST accounting bases compare (`Payments` vs `Invoice` vs `Hybrid`)?

When you [register for GST in New Zealand](/keel/nz-register-for-gst/) (mandatory once taxable turnover exceeds **$60,000** in any 12-month period), Inland Revenue asks you to select one of three accounting bases under the *Goods and Services Tax Act 1985 (Sections 19–19C)*:

| GST Accounting Basis | Who Can Use It (IRD Eligibility) | When You Account for 15% GST on Sales (`Box 5` / `Box 9`) | When You Claim 15% GST on Expenses (`Box 11` / `Box 12`) | Best For |
|---|---|---|---|---|
| **Payments Basis *(Cash Basis)*** | Annual taxable supplies of **$2,000,000 or less** (excl. GST) in any 12-month period | Only in the taxable period you **actually receive payment** from the customer | Only in the taxable period you **actually pay** the supplier (and hold Taxable Supply Information over **$200 incl. GST**) | **98% of NZ Sole Traders & Tradies** — protects cash flow against 30–60 day progress claims and retentions |
| **Invoice Basis *(Accrual Basis)*** | Any GST-registered business (mandatory above $2M turnover) | Whichever happens **earlier**: the date you **issue the invoice** OR the date you receive any payment | Whichever happens **earlier**: the date you receive the supplier's invoice OR pay for the purchase | Businesses that get paid immediately at point of sale but pay suppliers on 30-day trade accounts |
| **Hybrid Basis** | Any GST-registered business | **Invoice basis** for sales (pay GST as soon as you issue an invoice) | **Payments basis** for expenses (only claim GST after you pay the bill) | **Almost never recommended for tradies** — combines the worst cash-flow timing of both methods |

*How to switch to the Payments Basis in myIR:* If your turnover is under $2 million and you are currently on the Invoice Basis, you can switch to the **Payments Basis** inside your **myIR GST account** (`Manage account` → `Change accounting basis`). On your transition return, IRD calculates a one-off adjustment for unpaid debtors and creditors so nothing is double-counted.

## What is IRD Use of Money Interest (`UOMI`) and when does it apply in 2026–27?

**Use of Money Interest (`UOMI`)** is statutory interest charged by Inland Revenue under *Part 7 of the Tax Administration Act 1994* whenever tax (including **Income Tax `IR3`**, **Provisional Tax**, **GST `101A`**, or **Employer deductions**) is paid after its due date, or paid by IRD to you when you overpay tax:

| IRD Interest / Penalty Rule (2026–27) | Current Statutory Rate / Threshold | How It Works for NZ Sole Traders & Contractors |
|---|---|---|
| **IRD Underpayment (Debit) Rate (`UOMI`)** | **10.88% per annum** *(calculated daily, not tax-deductible for individuals)* | Charged from the day after the original due date until the tax is paid in full |
| **IRD Overpayment (Credit) Rate (`UOMI`)** | **4.30% per annum** *(assessable income)* | Paid by IRD when you overpay provisional tax under certain methods |
| **Small Balance UOMI Exemption** | **$100 threshold** | IRD generally does not charge UOMI if the unpaid tax on an assessment is under $100 |
| **Safe Harbour Threshold (Provisional Tax Standard Method)** | **Residual Income Tax (`RIT`) under $60,000** | If you are an individual sole trader whose RIT is **under $60,000**, and you pay all **3 Standard Uplift (`105%` / `110%`) provisional tax instalments on time**, IRD does **not** charge UOMI from the 1st or 2nd instalment dates—interest only starts after your **Terminal Tax date (7 February, or 7 April with a tax agent)** |
| **Late Payment Penalties (Separate from UOMI)** | **1% on Day 8 + 4% on Day 15** | Added on top of UOMI if a GST or tax bill remains unpaid 7 days after the due date (first-time late payers often receive a 1-time IRD grace warning) |

## How does Payments-Basis GST prevent a UOMI cash crunch in $NZD (worked example)?

Suppose Wiremu is a GST-registered sole trader roofing contractor in Hamilton filing **two-monthly GST returns** (`Period ending 30 September 2026`, due **28 October 2026**):

- On **25 September 2026**, Wiremu finishes a commercial re-roof and issues a progress claim invoice for **$34,500 incl. GST** (`$30,000` + `$4,500` GST), payable on the 20th of the following month (plus a 10% retention held by the head contractor). Due to a certification delay, the head contractor does not pay until **12 November 2026**.
- During August–September, Wiremu also received **$23,000 incl. GST** (`$3,000` GST) from completed residential jobs and paid **$11,500 incl. GST** (`$1,500` GST) at PlaceMakers and Bunnings.

| Calculation on `GST 101A` (Due 28 October 2026) | If Wiremu Used **Invoice Basis (Accrual)** | If Wiremu Used **Payments Basis (Cash)** |
|---|---|---|
| **GST on Sales (`Box 9`: Total Sales × 3 ÷ 23)** | `$57,500 × 3 ÷ 23` = **`$7,500.00`** *(includes $4,500 GST on the unpaid $34,500 invoice!)* | `$23,000 × 3 ÷ 23` = **`$3,000.00`** *(only counts cash actually received by 30 Sept)* |
| **GST Credit on Purchases (`Box 13`: Purchases × 3 ÷ 23)** | **`$1,500.00`** | **`$1,500.00`** |
| **Net GST Payable to IRD on 28 October (`Box 15`)** | **`$6,000.00`** *(Wiremu must find $4,500 cash he hasn't been paid yet, or face 10.88% UOMI + 5% late penalties)* | **`$1,500.00`** *(paid easily from cash already in the bank; the $4,500 GST on the big job isn't due until 15 January 2027)* |

## How does the $60,000 Safe Harbour rule protect NZ sole traders from UOMI?

For an individual sole trader filing an **`IR3` return**, IRD's **safe-harbour rule** is the best protection against the **10.88% UOMI debit rate**:
1. Calculate your **Residual Income Tax (`RIT`)** (your total income tax bill minus any PAYE or `WT` schedular withholding tax already deducted at source).
2. As long as your actual RIT for the year stays **under $60,000** and you did **not** manually estimate your provisional tax downward in myIR, paying the **3 Standard Uplift instalments (`105%` of last year's RIT)** on their exact due dates (**28 August**, **15 January**, and **7 May** for a standard 31 March balance date) shields you from backdated UOMI completely.

## How does Keel compare with Hnry and Xero for NZ GST & Provisional Tax?

| Feature | **Hnry NZ** | **Xero NZ (Ignite / Grow)** | **Keel (`$0/mo` NZ Sole Trader Edition)** |
|---|---|---|---|
| **Annual Cost at $120,000 Turnover ($NZD)** | **$1,200/yr + GST** (`1%` fee on all self-employed income up to $1,500/yr) | **$420 to $900+/yr** ($35–$75+/mo subscription) | **$0/mo Core App** (Keep 100% of your pay into your own NZ bank account) |
| **Payments-Basis GST (`3/23`) & `GST 101A` Boxes** | Files automatically (takes 1% cut of every invoice) | Yes (monthly subscription required) | **Yes — tracks paid invoices vs paid dockets on a Cash basis (`Box 5` to `Box 15`) for free myIR filing** |
| **NZBN Taxable Supply Information (`$200` Rule) & Quotes** | Basic invoicing | Yes | **Yes — 15% GST / Zero-Rated / Schedular `WT` contractor invoices + variation quotes** |
| **IRD 90-Day Ute Logbook (`$1.17/km`) & Docket OCR** | Manual expense upload | Requires Hubdoc / add-ons | **Yes — built-in on-device Apple Vision Docket OCR + IRD `$1.17/km` & 90-day logbook** |

## Frequently asked questions

**Should a New Zealand sole trader use the Payments Basis or Invoice Basis for GST?**

Almost every New Zealand sole trader and tradie with annual turnover under **$2 million (excl. GST)** should select the **Payments Basis (Cash Basis)** on their `GST 101A` return. Under the Payments Basis, you only pay 15% GST to IRD in the period your customer actually pays you, so late-paying clients or construction retentions never force you to pay GST out of pocket.

**How do I avoid IRD Use of Money Interest (UOMI) on provisional tax?**

If your **Residual Income Tax (RIT)** is between **$5,000 and $59,999**, use the **Standard Uplift Method** (`105%` of last year's RIT, or `110%` of two years ago if last year isn't filed) and pay all **three instalments on time (28 August, 15 January, and 7 May)**. Under IRD's **safe-harbour rule**, you will not be charged 10.88% UOMI during the year even if your actual profit jumps higher, provided you pay any balance by your Terminal Tax date.

**How is 15% GST calculated from a GST-inclusive total on `GST 101A`?**

Multiply the GST-inclusive total by **3 and divide by 23** (`Total × 3 ÷ 23`). For example, a $1,150.00 GST-inclusive invoice contains `$1,150 × 3 ÷ 23 = $150.00` of GST (`Box 6` / `Box 9`) and `$1,000.00` excluding GST (`Box 7`), making it easy to verify your `GST 101A` worksheet before filing in myIR.

**Is IRD Use of Money Interest tax-deductible for a sole trader in New Zealand?**

For an unincorporated individual sole trader filing an `IR3` return, Inland Revenue generally treats Use of Money Interest (`UOMI`) as non-deductible personal tax interest unless specific business reassessment criteria under the Income Tax Act 2007 are met, whereas companies (`IR4`) can usually deduct UOMI as a business expense.

**Can I switch from the GST Invoice Basis to the Payments Basis in myIR mid-year?**

Yes. Provided your total taxable supplies in the past 12 months (or expected in the next 12 months) are **$2,000,000 or less excluding GST**, you can request a change from the Invoice Basis to the Payments Basis directly inside your **myIR GST account**, and IRD will apply the change from the start of your next GST filing period.

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