If there’s one thing most businesses hate paying more than tax, it’s usually ACC. Generally, this is because they have no idea how their bill is calculated or what it’s for.
What do I pay?
In general, if you’re someone who’s self-employed you’ll pay ACC based on the salary you get paid from your company (which your accountant will usually set). The higher the salary the higher the ACC bill.
You’ll receive two ACC invoices each year. The two invoices cover different ‘accounts’ (or things you have to pay ACC for). One is based on what you earned last year, adjusted for inflation (if you want to get technical this covers the Earner and Work Levies). The other is based on what you actually earned in the current financial year (the Residual and Health & Safety Levies).
When do I pay?
Once you’ve filed your tax return, the IRD will send your earnings information to ACC. Depending on when the tax return is filed, and how long IRD processing takes, ACC will then issue you with your invoice.
What don’t I pay ACC on?
In short, if you’d still receive the income if you were injured, you don’t pay ACC on that income.
So, if you’ve got a rental property and actively manage the rental yourself then you pay ACC on the net income (this is because the rental would suffer if you were injured). On the other hand, if you’ve got an external property manager then you pay no ACC on the net rental income.
What happens if I need to claim?
If you’re on PAYE/wages this is relatively straight forward. However as most self-employed people aren’t, you need to prove the loss of earnings. This can be a cumbersome process which can delay any payouts from ACC.
It’s worth noting that what you receive from ACC is capped at 80% of your earnings, and further capped at a maximum of just under $93,000. This means you might not be reimbursed for your full earnings. Further, if your accountant has got up to any fast footwork, your payout amount might be reduced considerably further.
We can sit down for an absolutely no obligation coffee to explain what you’d get if you were injured (or what your family would get if something worse happened…).
So what are my options to control my premiums and simplify the claims process?
ACC have an optional product (called ACC Cover Plus Extra) which makes everything a lot more simple. This is particularly true if:
- Your income fluctuates from year to year
- Your business may generate income if you are injured
- You are new to business
- You split your income with a partner
With Cover Plus Extra you can set the level of payout you want. Some customers choose to keep it the same and have certainty about what they’re going to get if something goes wrong. Others choose to “dial it down”, and use the monthly savings to put in private cover (we don’t do this but know the people to talk to) to protect again illness as well as injury.
For many self-employed or small business owners their annual ACC bill can be many thousands of dollars. In many situations this figure can be reduced AND better cover put in place. The technical term is a “no-brainer”.