Inland Revenue is changing the interest rates paid by and to taxpayers who over and underpay their tax - but the rate it pays is dropping by more than the rate it charges.

From 16 January people who overpay their tax will be paid an interest rate of 4.3 percent, down from 4.67 percent previously.

Those who underpay will be charged 10.88 percent, down from 10.91 percent previously. This is charged when people do not pay their taxes by the due date.

Robyn Walker, a tax partner at Deloitte said the rates were driven by formulas.

"The underpayment rate is set as the Reserve Bank's floating first mortgage rate for new customers in the housing market, plus 2.5 percent. The overpayment rate is either 0 percent or the Reserve Bank's 90-day bill rate minus 1 percent, whichever is higher."

She said Inland Revenue would be collecting a "reasonable" amount of interest and it would accumulate on all outstanding tax debt. Just over 30 percent of all tax debt is interest and penalties.

"For most individuals they only need to worry about UOMI if they are a provisional taxpayer - they have sources of income where tax is not withheld at source.

"Sole traders, contractors, and landlords might be the most common individuals who pay provisional tax. Provisional tax has long been a bugbear for many taxpayers and consequently there are a few different payment options which are available to taxpayers which can minimise any exposure to UOMI. However, ultimately if tax is not paid then interest will accumulate. The rates of UOMI are both high for tax underpayments and low for tax overpayments in order to ensure that taxpayers don't treat Inland Revenue like a bank. "

In 2020, the rate for those with debt was 7 percent. Between May 2020 and August 2022, the credit rate was 0 percent.

It comes as accountants report more clients are facing tax debt.

Of 362 responses from chartered accountants in public practice to a survey by Chartered Accountants Australia and New Zealand and Tax Management New Zealand, 79 percent reported having entered or modified a tax debt arrangement on behalf of a client, a 7 percent increase on the previous year.

At the same time, one-third of accountants reported an increase in Inland Revenue audit activity, compared to last year.

"The survey highlights that businesses were crushed from all angles in 2024. Between ballooning interest rates, plummeting consumer confidence, and a recessionary business environment, Chartered Accountants are reporting more businesses are taking up tax debt arrangements," CA ANZ tax leader John Cuthbertson said.

"If you've got tax debt, don't ignore it - talk to your accountant, figure out a plan, and become one of those who are on track to meeting repayments."

-RNZ