Compare IRD underpayment interest against tax pooling rates.
Interest saving from tax pooling
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IRD underpayment interest
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Tax pooling cost
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IRD rate (8.35%)
8.35% p.a.
Pooling rate used
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Your breakdown
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Amount
How tax pooling works in practice
A tax pooling intermediary holds a large pool of tax credits on deposit with IRD. These credits represent tax paid by taxpayers who overpaid their provisional tax and are willing to sell their surplus to those who underpaid. When a business realises it has a provisional tax shortfall, instead of paying the IRD underpayment rate on the deficit, it purchases credits from the pool. The intermediary transfers those credits to the taxpayer’s IRD account, dated as at the original instalment due date, as if the tax had been paid on time. The business pays the intermediary at the lower pooling rate rather than the IRD rate.
The rate gap between IRD and the pool
The IRD underpayment rate as at 2025 is 8.35% per annum. Tax pooling intermediaries typically charge 3 to 5%, meaning the saving is usually between 3 and 5 percentage points per annum on the shortfall. For a $20,000 shortfall over 90 days, the IRD cost is roughly $413 and a 4% pooling rate costs about $197, saving around $216. For larger shortfalls or longer periods, the saving can be substantial, particularly for seasonal businesses with volatile income where provisional tax estimates frequently miss the mark.
When pooling is not worth it
Tax pooling involves a transaction fee with the intermediary on top of the interest cost. For very small shortfalls or very short periods, the transaction fee may exceed the interest saving. Most pooling intermediaries have a minimum transaction, so it is not viable for minor underpayments. It is also worth noting that the safe harbour rules exempt certain provisional taxpayers from UOMI entirely, for example those using the standard uplift method with a prior year residual income tax under $60,000. If you are in safe harbour, pooling is unnecessary because no IRD interest applies.
Frequently asked questions
What is tax pooling?
Tax pooling lets provisional taxpayers buy tax credits from a pooling intermediary that holds them on deposit with IRD. If a business underpaid provisional tax, instead of paying IRD underpayment interest at the published use-of-money interest rate, the taxpayer buys credits from the pool at a lower commercial rate. The intermediary transfers credits directly to IRD on the taxpayer behalf, as if the tax had been paid on time.
What is the IRD underpayment interest rate?
IRD charges use-of-money interest (UOMI) on underpaid provisional tax at a rate that changes periodically. As of 2025, the underpayment rate is 8.35% per annum. Tax pooling intermediaries typically offer credits at 3 to 5 percent, producing a meaningful saving when the provisional tax shortfall is large or the underpayment period is long.
Who uses tax pooling?
Tax pooling is primarily used by businesses on provisional tax who have had a better year than expected and underpaid their instalments. It is also used to manage timing risk when income is uncertain, or to spread the cost of a provisional tax shortfall at a lower rate. Most large accountancy firms in New Zealand have relationships with tax pooling intermediaries such as Tax Traders or TMNZ.
How long can I use tax pooling?
Tax pooling credits can be purchased for any date within the 75 days after a tax instalment due date or within 60 days of a terminal tax due date. The credits are backdated to the original due date, so the interest saving runs from that date. Credits cannot be purchased to cover underpayments outside these windows, after which UOMI at the IRD rate applies without remedy.