IRD has sent me a notice of proposed adjustment. What do I do now?

A notice of proposed adjustment (NOPA) is Inland Revenue’s written case for changing a return you’ve already filed. Read it carefully, note the date it was issued, and get your accountant on it this week. If you disagree with any part, you have two months to send a notice of response. Stay silent and the law treats you as having agreed.

Mr knows the feeling. The review or audit dragged on for months, you answered every question, and now an envelope (or a myIR message) sets out exactly how much more IRD thinks you owe. Here’s what the notice means, what to do with the two months, and how to make sure the cash side doesn’t catch you out.

Why are so many NZ businesses getting NOPAs?

Because Inland Revenue is auditing more. Its 2025 annual report says it opened 7,641 audits in 2024–25, 49% more than the year before, and assessed about $1 billion in additional tax. It had roughly 4,800 audit cases on hand at 30 June 2025. IRD names organised crime, the hidden economy and property-related activity as priorities, and it’s also looking across its wider customer base.

Not every review ends in a NOPA. But when IRD’s view of your return differs from yours and the conversation hasn’t settled it, the NOPA is usually how IRD puts its position formally on the record.

What is a notice of proposed adjustment, exactly?

It’s the first formal step in what IRD calls a Commissioner-initiated dispute. According to Inland Revenue’s disputes guidance, a NOPA sets out:

• the amount IRD wants to adjust;
• the facts and tax law it relies on;
• how it says the law applies to those facts.

Common triggers for small businesses include expenses IRD treats as private (vehicles, home office, family phones), income it believes wasn’t declared, GST claimed on the wrong basis, and property sales it says are taxable.

Mr says: A NOPA is a proposal, not a bill. That’s the good news. The less good news is that it turns into a bill on its own if you do nothing.

How long do I have to respond?

Two months from the date IRD issued the NOPA. Not the date it landed in your letterbox, and not the date you finally opened it. Diary it today, and diary a reminder two weeks earlier.

If you disagree, you respond with a notice of response on form IR771. It needs to state the changes you want, the facts behind your position and why you think you’re right. If you miss the deadline, you’re “deemed by law” to have accepted IRD’s proposal. The only escape is exceptional circumstances: events entirely outside your or your agent’s control that couldn’t reasonably have been anticipated. A busy month doesn’t count.

What happens after I respond?

The process has several stages, each with its own clock:

Stage	What happens	Time limit
1. NOPA	IRD sets out its proposed adjustment	—
2. Notice of response (IR771)	You set out what you disagree with and why	2 months from the NOPA date
3. Conference	Both sides exchange information and try to settle	No fixed limit
4. IRD statement of position	IRD issues a disclosure notice and its full case	—
5. Your statement of position (IR773)	Your facts, evidence and arguments	2 months from the disclosure notice
6. Adjudication	IRD’s independent Disputes Review Unit decides	—
7. Taxation Review Authority or High Court	If you still disagree	2 months from the new assessment

Two points owners often miss. First, if the case goes to the Taxation Review Authority or High Court, neither side can usually raise issues or legal arguments that weren’t in its statement of position. Your evidence needs to be complete early. Second, you can settle at almost any stage. Plenty of disputes end at the conference.

Should I dispute it, accept it, or both?

Often both. Go through the NOPA line by line with your accountant or tax adviser and sort every item into one of three piles:

1. We agree. IRD has a point: the ute was used privately on weekends, or a sale was missed. Accepting these early shows good faith and stops arguments over the easy items.
2. We disagree and can prove it. You have invoices, logbooks, bank records or contracts that support your position. These are worth a notice of response.
3. We’re not sure. Get proper tax advice before the two months run out. The cost of advice is usually small next to the adjustment.

Mr’s rule of thumb: dispute on evidence, not on frustration. A well-documented notice of response on two items beats a long, angry one on ten.

If the agreed pile is big enough to strain the business, start working out how to fund it now. Have a quiet word with Mr about where you stand. It takes about a minute, and asking doesn’t touch your credit file.

What will the final bill include?

Anything that sticks, whether you agree it or lose the dispute, usually comes with three parts:

• The extra tax itself (income tax, GST or both, depending on the adjustment).
• A shortfall penalty, if IRD considers it applies. Inland Revenue’s shortfall penalties page lists 20% of the shortfall for not taking reasonable care or taking an unacceptable tax position, 40% for gross carelessness, 100% for an abusive tax position and 150% for evasion.
• Interest on underpaid tax, which runs from the day after the original due date. On an adjustment going back a couple of years, that can add up.

There’s room to bring the penalty down. Inland Revenue says a shortfall penalty can be cut in half if you haven’t paid one for the same tax type in the past four years (two years for GST, PAYE, FBT and RWT). Voluntary disclosure before IRD notifies you of an audit can reduce penalties by 75–100%, and after notification but before the audit starts, by 40%. If an audit of one tax type turns up a problem in another that IRD didn’t say it would audit, telling IRD about it can still earn the larger reduction.

Do I have to pay while I’m disputing?

Generally not straight away. Inland Revenue’s interest guidance says you can delay payment while a dispute is decided. If the disputed amount turns out to be right, you pay it with interest. If it turns out to be wrong, IRD refunds any disputed tax you paid, with interest.

So you have a real choice:

• Hold the cash and accept that interest will be added if you lose.
• Pay some or all of it now to stop the interest building, knowing you’ll get it back with interest if you win.

Either way, keep paying your current GST, PAYE and provisional tax on time. A fresh debt growing beside a dispute is the fastest way to lose IRD’s goodwill. Our tax due dates tool shows what’s coming over the next twelve months.

How do I plan the cash if the adjustment sticks?

Build a worst case and a likely case, then test both against your twelve-month cash flow forecast:

• Worst case: every proposed item stands, with the full penalty and interest to date.
• Likely case: the agreed items, plus whatever your adviser thinks you could realistically lose.

Then match the number to a way of paying it:

Size of the bill	Usual approach	Watch for
Small, cash on hand	Pay in full when assessed	Don’t empty the account before the next GST date
Moderate	Instalment arrangement with IRD	Interest keeps running; current tax must stay up to date
Large or several years’ worth	Finance to clear it, sometimes alongside a short arrangement	The full cost of the loan, and repayments that fit your forecast

For larger amounts, property is often the lever. Mr’s lenders consider property-secured business loans from $20,000 to $5,000,000 against residential or commercial property, and unsecured options for trading businesses, typically $5,000 to $500,000, sized on turnover and bank statements. IRD debt is looked at case by case. Our page on getting a business loan with an IRD debt explains what lenders look for.

Mr says: Be upfront with any lender about the dispute. “Here’s the NOPA, here’s what we’ve agreed, here’s our worst case” is a conversation a good lender can work with. A surprise found later isn’t.

Illustrative example: a Hamilton landscaping company

This example is invented to show how the process can play out.

A two-director landscaping company in Hamilton has a GST and income tax review covering two years. Four months later, a NOPA arrives proposing three changes: treating most of a double-cab ute as private use, adding income IRD believes came from unrecorded cash jobs, and disallowing a home-office claim.

With their accountant, the directors sort the items:

• The ute: there’s no logbook for the first year. They accept a private-use adjustment for that year and dispute the second, where a logbook exists.
• Cash jobs: they disagree. Their quotes, invoices and bank deposits reconcile, and they send a detailed notice of response six weeks after the NOPA date.
• Home office: they accept it. The claim was overstated.

IRD issues a new assessment for the accepted items: extra tax, a shortfall penalty for not taking reasonable care (halved, as the company had no recent penalty) and interest back to the original due dates. That bill arrives while the cash-jobs dispute heads to a conference.

Rather than squeeze winter cash flow, the directors pay the agreed amount with a modest second mortgage over one director’s home, and keep a written worst-case figure for the disputed item in their forecast. Whichever way the conference goes, they know how they’ll handle it.

Ask Mr before the two months run out

A NOPA puts you on a clock, and that’s exactly when it helps to know your funding options before you need them. Whether you end up accepting part of the adjustment or fighting all of it, knowing you can cover the likely bill takes a lot of heat out of the negotiation.

Here’s how Mr works. The enquiry takes about 60 seconds, and there’s no credit check when you first get in touch. Your details stay with us. There’s no spray-and-pray to a long list of lenders, so your phone won’t start ringing off the hook. A real person reads your situation, from the NOPA to the property you own and the state of your other tax accounts, and rings you to talk it through.

One request: fill in the form accurately. Tell us the amount IRD is proposing, what you’ve agreed, what’s disputed and whether any returns are outstanding. Straight answers let us point you to the right option first time, rather than the third.

Ask Mr if you qualify →