Estimation Method And UOMI Risk
Estimation method and UOMI risk sit together. Inland Revenue lets you pay the residual income tax you forecast for this year, including $0, but interest is then tested against what the return actually shows at each instalment date, not only against the figure you typed in myIR.
Use of money interest is a charge for the use of money, not a late filing fine. From 16 January 2026 Inland Revenue charges 8.97% on underpaid tax and pays 2.25% on overpaid tax. The rate is calculated daily and does not compound. The practical risk is the start date: estimation can pull that daily charge back to August, not only to the end of year wash up.
When does UOMI start on each option?
On the estimation method, Inland Revenue works out interest on the difference between the provisional tax you have paid and residual income tax for the year. If, based on residual income tax, you have not paid enough at each instalment, interest is charged from the day after those instalment dates.
| Situation | When interest starts | What people miss |
|---|---|---|
| Estimation, residual income tax over $5,000 (IR289) | Day after each instalment date, on the shortfall against actual residual income tax | Paying the estimated amount on time does not stop the charge |
| Standard, residual income tax under $60,000 | Day after the end of year tax due date | Before the 2023 income year, late instalments were charged from the missed date |
| Standard, residual income tax $60,000 or more, other instalments paid in full and on time | Day after the final instalment date, on the difference between what you paid and residual income tax | You can still pay a more accurate final instalment and stay on standard |
| Standard, then you switch to estimation | Interest is calculated as if you estimated for the full year | You cannot switch back to standard in the same year |
| Under or over by $100 or less | Inland Revenue will not charge or pay interest | This $100 floor sits on both the general UOMI page and the provisional tax interest page |
Residual income tax is the leftover tax after listed credits. That definition is on what residual income tax is. Split a forecast into dates on the provisional tax calculator. Who pays and which option you elect stay on the provisional tax hub.
Standard option compared with estimation
Standard option
Inland Revenue uses this unless you choose otherwise. Instalments follow last year plus 5%, or 2 years ago plus 10% when an extension of time leaves the latest return unfiled. Interest timing depends on whether residual income tax is under $60,000 or $60,000 or more. The 105% versus 110% split is on standard uplift 105% vs 110%.
Estimation option
Inland Revenue: this can help if income will significantly increase or decrease, you have a loss to offset, or you have moved from untaxed self employment onto salary or wages. You can estimate at any instalment date, or any other date up until the final instalment date. If you estimate residual income tax of more than $60,000, provisional tax is generally paid in 3 instalments.
IR289 is clearer on the usual reason to estimate: the option could be right when your income is dropping, because the standard option might mean you overpay. A bumper year is not the same problem. If you expect residual income tax of $60,000 or more and you have paid all but the final instalment in full and on time, you can make a final payment that better reflects your income and remain on the standard option.
myIR estimate button
Inland Revenue’s Mary example: she estimated on 1 December, after the first instalment date. Debit interest still applies from the first instalment onwards, regardless of when she estimated. IR289: once you have selected estimation, you cannot change to the standard option during the same year.
How Inland Revenue tests an estimate
You estimate residual income tax, then pay that figure in instalments. IR289: add up the taxable income you expect, calculate the tax, deduct PAYE and other listed credits (except Working for Families). You can estimate in the Estimate provisional tax service in myIR, by sending a message in myIR, by calling, or by writing. You can estimate as many times as you like up until the final instalment due date. If you estimate again, later instalments have to take earlier under or overpayments into account.
Keep a close eye on profits. Inland Revenue: you could be charged a penalty if the estimate is too low compared with actual residual income tax once you have filed. IR289: a shortfall penalty can apply if the estimate is unreasonably low. Not taking reasonable care is 20% of the underpaid amount. Unacceptable tax position is 20%. Gross carelessness is 40%. An abusive tax position is 100%. Evasion is 150%.
From 16 January 2026 the underpayment interest rate is 8.97% and the overpayment rate is 2.25%. Interest you are paid on an overpayment is gross income. Interest you pay on underpayments of tax is deductible for business purposes. Inland Revenue may remit interest only in limited cases, such as wrong advice that directly caused non compliance: read SPS 18/04 before you ask.
Inland Revenue example: Mary
March balance date. She estimates $15,000 on 1 December 2024 after missing a $0 first instalment. She pays $7,500 at 15 January and $7,500 at 7 May.
The 2025 return shows residual income tax of $9,000. Inland Revenue still spreads that $9,000 across the 3 instalments ($3,000 each) for interest.
P1: charge interest on $3,000 from the day after P1. P2: pay interest on $1,500. P3: pay interest on $6,000 from the day after P2 until the credit is refunded.
Use case: same facts as Mary, labelled
Situation: a Christchurch designer on a March year, income looked softer mid year so they hit estimate in myIR. Interest: Inland Revenue still tests each date against a third of final residual income tax. Action: if profit recovers, estimate again before the final date and pay the catch up. Do not assume the original estimate is a safe harbour.
- ✓Watch profits: Inland Revenue tells you to estimate again if it looks like you will earn more or less than you expected.
- ✓Income down: estimation can stop you overpaying last year’s uplift. Income up: stay on standard where you can, and use a truer final instalment if residual income tax is expected at $60,000 or more.
- ✓Pooling: Inland Revenue lets a registered intermediary group payments so underpayments in the pool can be offset, which can reduce UOMI. Contact an intermediary if you want to use a pool. That is not a licence to estimate low.
What people mix up
PersonalFinanceNZ posters hit Estimate because work dried up, then learn the year is tested against actual residual income tax at every date. Inland Revenue confirmed that path on the interest page. Estimate again before the final instalment if the year recovered. Paying extra as soon as you can cuts the days interest can run.
Some blogs treat 105% paid on time as a total interest holiday, even after you later click estimate. Inland Revenue: if you used the standard method then switch to the estimate method, interest is calculated as if you estimated for the full year. Some blogs also split instalments 35, 35, and 30, or say UOMI compounds. Inland Revenue divides estimation years by the instalment count, and the general UOMI page says the rate does not compound.
A farm profit rebound is a cashflow problem on standard uplift if last year was thin. Switching to estimation to “pay more” still opens full UOMI if the estimate is still short. IR289’s Hiwi example is the other way: property profit is expected to fall, so the agent moves him to estimation, then he estimates again from $59,371.50 to $65,000 when the year improves, and the 7 May instalment becomes $25,419.00.
Forum rates of “about 11%” are stale. Use Inland Revenue’s live table: 8.97% charged and 2.25% paid from 16 January 2026.
Frequently asked questions
Does paying my estimate on time stop use of money interest?
No. Inland Revenue: if you use the estimation method and, based on your residual income tax, you have not paid enough at each instalment, interest is charged on the difference from the day after those instalment dates. You may be charged even if you paid your estimated provisional tax in full and on time. You may also be charged penalties.
If I click estimate in myIR, can I go back to the standard option this year?
No. IR289: you can change from the standard option to the estimation option at any time up until the final instalment due date. After you have made the change, you cannot change back to the standard option for the same tax year. Inland Revenue will then calculate interest as if you estimated for the full year.
If this year is a bumper year, should I switch to estimation so I pay more?
Not as the first move. IR289: if you are on the standard option, expect residual income tax of $60,000 or more, and have paid all but the final instalment in full and on time, you can make a payment for your final instalment that better reflects your income and remain on the standard option. Inland Revenue says the estimation option could be right when your income is dropping.