You are not alone; most business people comment that ACC levy invoices do not make much sense.
Part of the reason for this is the way ACC levies are calculated, some in advance and some in arrears. Often this is not in a sequential order so you might be paying this year's and paying a wash up on a year before last. This is usually because of the way you have reported your accounts; this is also across two or more levy invoices. Added to this the various components to cover the past and future risks ACC have, credits that happen if you have overpaid a portion calculated on a prior estimate.
How do you make sense of it all?
One way is to find some quiet time, with a tea or coffee, and read through your ACC accounts. The challenge with this is it takes time, often quite a bit, because you have to match up all of the bits and pieces across the invoices. Some for last year, some for this year and even some from the previous year, to make sense.
The other way is to get someone involved who understands the ACC system. I can have a look at what is going on to make sense about what needs to be done, what plans you can put in place to minimise cash flow impact, and in most cases, we can also look at reducing your overall ACC levies, especially if you have other insurance in place.
If you do take a shot at figuring it out yourself, a couple of things you need to keep in mind:
ACC invoices you for your levies once your business accounts have been received by IRD. If you are submitting two or three years of accounts all at once, you are going to get a bit of a surprise with ACC, as they will wash up for all of the years submitted all at once.
Your timing when submitting your business accounts to IRD will drive ACC's invoicing of your levies, so planning when you do this can help with timing of invoicing.
ACC is going to invoice you for this year's expected levies based on last year's income. If you have significant changes in your income year to year, you will find your levies will fluctuate up and down as well. If this is the case, there are ways to manage this, so you do not have large levy invoices in years were you have less income, and you do not find yourself short if you do have an ACC accident claim.
One thing that is often incorrect is the ACC classification. If you get it wrong, you may find ACC is asking you for more money, or you are overpaying your ACC levies because you are paying for a higher risk then you should be.
ACC has an extensive list of classifications, and it does not always make sense. I have seen many situations where people have been rated incorrectly; often it is a situation where they have been rated at a lower risk than they should be. This puts you at risk of ACC retrospectively applying levies to previous years if they feel this has been an intentional avoidance of levies.
Managing ACC levies and managing cash flow
ACC has two parts of their business most people are unaware of.
The first is the ability to spread your ACC payments over up to 10 months.
For levy accounts under $575
You can spread your payments over three months. This is usually done was a direct payment or automatic payment by you. This needs to be arranged with ACC to ensure you do not have late payment penalties. By using ACC rules creatively, we can effectively spread this over up to 6 months, even though it still only three payments. This can assist with cash flow at quiet times of the year as quiet times are often when you get your accounts completed which trigger the ACC invoices.
For levy accounts over $575, we have a few more options.
You can make payment arrangements up to 3 months and the same way that you can for the recount under $575.
You can arrange a direct debit payment plan with ACC for 4 to 6 months without any interest or penalties so is a great way to manage cash flow without impacting or increasing your costs.
If you have large levy accounts or you have significant cash flow pressures, you can spread your ACC levy payments out over ten months. With levy payment arrangements between seven and ten months, ACC charges an administration fee of 5.4%. While this is an increased cost, cash flow is not significantly impacted. Particularly if you are borrowing the money to pay the bill with overdraft and credit rates of 16 to 20%, ACC's option is a cheaper option.
The second part of ACCs business that most people are not aware of is the Cover Plus Extra option
As a business person, you will be paying for one of two product options with ACC. One is workplace cover the other is cover plus; this is where it starts to get a little bit confusing with cover plus extra.
Cover plus extra is very similar to the standard workplace cover or cover plus you already have, the key differences it is an agreed value. Because it is an agreed value you have to specifically apply for it.
Why would you bother?
Why would you specifically apply for cover plus extra rather than doing what you currently do? For more certainty for your replacement income in an accident situation and to manage your annual levy invoices.
Because you are applying for a fixed agreed amount of you, have the confidence that your cover and levies will be consistent, or reasonably consistent, year-on-year. Another advantage is if you have an accident claim with ACC as you transition back to work on the standard cover they will offset any earnings you make, with cover plus extra ACC will pay you a full claim until you are fully back to work.
The key advantage of using cover plus extra to manage your levy invoicing is your ability to dial back or reduce your ACC coverage. There are minimum levels of cover, we cannot make ACC levies go away completely, but we can reduce them. If you do this, there are risks. These risk can be mitigated if you have income or disability insurance that covers you for both accident and medical disabilities. For many people, this is an easy fix as they already have this sort of insurance cover. You may be already paying more than you need to protect your income.
Another aspect of ACC that most people are not aware of is something ACC call fatal entitlements. If you die in an accident, your spouse and your children can receive a percentage of your income for a period of time. By reducing your ACC coverage utilising cover plus extra you will reduce these fatal entitlements for your family.
This is where it is a good idea to get some advice from an insurance professional as they have the ability to quantify the risks associated with these changes and provide you insurance options they can mitigate the risk often created within the cost of your current ACC spend.
Another reason you should be consulting an insurance professional in this area is where your taxable income is above $100,000. ACC has an upper limit for the replacement of income in an accident, which moves every year, it is $122,063 per annum for self-employed 2016/2017, above this, you need to have disability insurance to ensure your income is protected.
Email me now to schedule your review or contact J-P on 021 022 69 127.
The information is only intended to be of a general nature and should not be relied upon in any part without obtaining full details of the products and services by contacting Willowgrove Consulting Limited. All product and service details, terms, conditions and other information are subject to change at any time without notice. Terms, conditions and fees apply to the various products and services and are available on request. A disclosure document will be provided to you on request free of charge.