Sick of hearing about ACC and health and safety? Yup!
Ok sorry I've got news for you, neither is going away in a hurry. Actually the health and safety bit is going to get worse. I'll talk more about that in another post, as there's a few things going on in the background I'm looking at for clients.
Back to the self-employed and ACC thing.
You're in business for yourself, you work hard, pay your expenses and pay yourself an income, and the accountant works his or her magic and you pay a whole lot less tax than as an employee.
Sound a bit like you?
Ok we're on the same page. Let me unpack a few things for you.
Your income comes in, let's say it's $100,000 for nice round number reasons. From that you have $50,000 of expenses and you take home $50,000 in income. Meaning you pay tax on $50k and pay ACC levies on the same $50k.
Ok so come to a situation where you're involved in a car accident. I'll use an example I had the morning of writing this, you get hit in the side and it's stuffed your shoulder up. Fortunately, not your dominant side but still needs surgery to fix.
ACC is going to come to the party and pay for your surgery and they will also pay you weekly compensation for your six months of recovery, as you can't work at all for this time. (Less anything you do manage to do but we'll just park that) Let's assume that this is simple and straight forward too, let's not make it too complicated!
In this situation how many of you have figured out that ACC will be paying you 80% of $50,000?
So ACC is going to pay you $40,000 for the full year, tax assessable, which is $20,000 tax assessable for the 6 months off work.
Where is the other $25,000 of business expenses going to come from in this period? ACC pays your personal income, not your business income before expenses.
Then there's the other $5,000 shortfall on your current personal income.
Is this all sounding a bit bleak?
Yes, you'd be right. In the situation of a broken leg and a typical 8 weeks off, meaning maybe a month for self-employed, probably less, and then light duties until you get the cast off. You can probably weather that ok. But if it's longer, then you're going to have some real problems.
The average accident disability claim is 14 months to return fully to work, most are short term 6-12 weeks, but a good portion are much longer.
I've had one client with a broken ankle, that became complicated, the usual timeframe for recovery is about 6 weeks. However, the 10 days waiting for surgery didn't help and then there were the complications. Actual time off work, 17 weeks. In this case when I saw him after 12 weeks he was still struggling to navigate stairs, let alone get any work done.
As I write this, a close friends mother has taken a tumble, surgery and 10-12 weeks’ recovery is expected for the ankle break she sustained. Nasty one from what I've been told.
So let's be real. (And very blunt)
How are you going to cover your business expenses when ACC is paying 80% of your personal income and nothing else is coming in?
Got nothing? Yes, you and most self-employed, when it comes to the reality.
The common answer is “I'll get someone in to do the work.” Ok how's that going to work for you from a hospital bed?
And where's the money going to come from? As the work needs to be done and wages paid, before you see it from your clients & customers.
That is of course if, in a labour market short on skilled labour, you can find someone.
“I'll borrow the money from the house”, ok possible. If you already have a line of credit available ok. If not under the new lending laws, because you're disabled and not working your capacity to pay is compromised, the likely answer will be no. The other problem with borrowing money, you have to pay it back at some point.
(If this is part of your plan, arrange the line of credit now, while you are fit and able and you have the financial accounts to prove it)
The really simple answer is give me a call and get us to sort it for you.
The answer is likely to include, a form of business income protection (for your business expenses), personal income protection (for your personal income) and a restructure of your ACC cover (Because the insurance will cover medical and accidental disabilities unlike ACC) and this will help pay for it all.
In all likelihood, if you're in a trade this could be relatively cost neutral. Age, health, smoking status and occupation will have an impact.
Fit, healthy and younger in a manual trade, we'll likely save you money on what you're spending currently on ACC Levies.
Now does that make it simpler for you?
Call us on, 09 215 8998 or 021 022 69 127 to get J-P to sort it! alternatively book a convenient time to have a chat