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) (or click 🔗 Embed / CSV Template), explore the AU/NZ Tradie & Sole Trader App Store Edition and No-Subscription Bookkeeping Edition, or Download Keel Free on the App Store ($0/mo) (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 and Use of Money Interest (UOMI) 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, provisional tax explained, and NZBN invoice and docket book rules.

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

When you register for GST in New Zealand (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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