Inland Revenue audits are on the rise. Is your business ready?
Not long ago, a letter from Inland Revenue was a rare event for most small businesses. These days it's becoming a lot more common.
Across New Zealand, we’re seeing more IRD queries, risk reviews and audits arrive in our inboxes than we have in years. Tax legislation is already complex, and iteration after iteration of changes can create unintended consequences, uncertainty and a higher risk of getting things wrong — even for those doing their best to comply. Alongside the government’s increased focus on tax compliance, areas attracting scrutiny include refund claims, businesses reporting ongoing losses, property transactions, tax residency, GST and investments such as cryptocurrency.
Receiving an IRD query doesn’t mean you’ve done anything wrong. But even a straightforward IRD enquiry can take time and professional expertise to resolve. Good records, timely advice and a little preparation can make the process much easier to manage.
Here’s what’s driving the change, where IRD is focusing its attention, and what you can do to be ready.
Why is IRD auditing more?
For much of the last decade, IRD's attention was elsewhere. It was rebuilding its computer systems, then supporting businesses through COVID. Audit activity dropped right off.
That’s changed. The government increased Inland Revenue’s compliance funding in both Budget 2024 and Budget 2025, and the results are already showing. In the year ended 30 June 2025, IRD completed 6,147 audits—42% more than the previous year. Budget 2026 has continued that investment, adding a further $15 million a year to strengthen the collection of overdue tax.
Compliance work also delivers a strong return for the government. In 2024/25, IRD reported $11.81 in value identified for every dollar spent on compliance interventions, including audits, reviews and voluntary disclosures. With those results and continued government investment, we expect the heightened focus on tax compliance to continue.
IRD is working smarter, not just harder
The biggest change isn't the number of people IRD has on audits. It's the data.
IRD's systems now automatically screen millions of tax returns. It also uses property records, and it has started drawing on payment provider data, such as EFTPOS and online payment transactions, to check GST. If the figures in your return don't match what IRD can see elsewhere, your return is more likely to be flagged for a closer look.
Who is Inland Revenue focusing on?
IRD has been open about where it's directing its attention:
Property. This is the largest area of audit activity. It covers property sales and people who own several properties across personal names, companies and trusts.
Construction and trades. Plasterers and painters are a current focus. (Read more about how we support construction businesses.)
Cash-based businesses. This includes hospitality and retail, and IRD has been making unannounced visits to liquor and vape stores. (See our tourism and hospitality services.)
Companies and trusts. IRD is looking closely at income kept in a company or trust, where it suspects this is being done to avoid the 39% personal tax rate. (Find out more about companies and trusts.)
GST, PAYE and FBT. These are the everyday taxes most businesses deal with, so they're also the most common source of IRD queries.
Being in one of these groups doesn't mean you're doing anything wrong. It simply means IRD is more likely to take a look.
What does an IRD audit actually involve?
An audit rarely starts with someone turning up at your door. It usually begins with a phone call, a letter asking for information, or a "risk review" of a particular return.
Responding properly usually involves:
Gathering bank statements, invoices, GST workings and payroll records
Reconciling those records against what was filed, sometimes going back several years
Preparing clear written explanations for IRD
Corresponding with IRD until the matter is closed
Even when everything checks out perfectly, this takes time away from running your business, and professional fees can add up quickly.
Five ways to make sure your business is audit-ready
Keep complete, well-organised records.
Businesses generally need to keep IRD records for seven years. Cloud accounting software such as Xero makes this much easier, because your records can be stored securely against each transaction and are simple to find when you need them. If you are not using this feature and would like to, please reach out to your Accountant here.Keep business and personal spending separate.
When business and personal spending go through the same account, it takes much longer to show IRD what was what. Separate accounts can turn a long query into a quick one.Keep an eye on your shareholder current account.
Overdrawn current accounts and unexplained drawings are the kind of thing that attracts IRD's attention. If you're not sure where yours sits, ask us.Record every cash sale.
If your reported takings or your gross profit margin looks low compared with similar businesses in your industry, expect IRD to ask questions.Talk to your accountant early.
If something has been missed, it's almost always better to fix it before IRD asks. A voluntary disclosure usually leads to a much better outcome than waiting to be found.
Frequently asked questions
Does an IRD audit mean I've done something wrong?
No. Many audits and reviews start from automated data checks, refunds or IRD's focus on particular industries. Plenty of them end with no changes at all.
How far back can Inland Revenue look?
IRD can review returns from previous years, which is why keeping good records matters. Your accountant can explain the time limits that apply to your situation.
What should I do if IRD contacts me?
Don't ignore it, and don't panic. Get in touch with your accountant straight away so the response is accurate, complete and on time.
We're here to help
Most of the businesses we work with are doing the right thing. The ones who handle an audit best are simply the ones who are prepared.
If you've received a letter from Inland Revenue, or you'd like the peace of mind of knowing your records are in good shape, get in touch with our team. You can reach our Kerikeri office on 09 407 7117 or our Kaitaia office on 09 408 1220.