ACC levies, explained

Why the self-employed pay ACC

New Zealand's accident compensation scheme covers everyone for injury, no matter how it happened, and in return there is no right to sue for personal injury. To fund that, working people pay ACC levies. When you are an employee, your employer handles most of this behind the scenes. When you are self-employed, you become responsible for it yourself.

This catches people out for two reasons. First, ACC levies are separate from income tax — they are not part of your IRD tax bill, and ACC invoices you directly. Second, the bill usually arrives after you have filed your tax return, because ACC works out your levy from the business income you declared to IRD. So a strong year in business quietly sets up a larger ACC invoice a few months later.

Work levy vs earner levy

As a self-employed person you generally pay two main components, and it helps to understand what each one covers:

The work levy varies a lot by occupation. A desk-based consultant sits in a low-risk classification and pays a small work levy, while a roofer or builder sits in a high-risk classification and pays considerably more, because the chance of a work injury is higher. The earner levy is the same rate for everyone and is the same levy employees pay through PAYE, just collected from you directly. Choosing the right classification unit (CU) for your actual work is important; being slotted into a higher-risk code than your real activity warrants means you overpay year after year.

CoverPlus and CoverPlus Extra

There are two main products for the self-employed, and the difference matters most when something actually goes wrong:

• CoverPlus is the default. If you are injured and can't work, weekly compensation is based on your most recent income declared to IRD. It is simple, but a new or low-income year can mean a low payout even if your business is usually stronger.
• CoverPlus Extra is an agreed-value option. You and ACC agree in advance on a set level of cover, and that is what you are paid if you can't work, regardless of what your latest return shows. It costs more in levies but gives certainty, which suits people with variable income or those who have just started out.

CoverPlus Extra is worth a serious look for new business owners, because under standard CoverPlus a slow first year can leave you under-covered exactly when you are most exposed. We talk this through as part of getting your first-year tax setup right.

How levies are calculated

Your ACC levy is built from your liable earnings — broadly, your net self-employed income from your IR3 — multiplied by the relevant rates:

• The work levy rate for your classification unit, expressed as a dollar amount per $100 of earnings.
• The earner levy rate, a flat national rate per $100 of earnings.
• A small Working Safer levy that funds workplace safety regulation.

There are minimum and maximum liable-earnings thresholds, so very low earners pay a minimum levy and very high earners are capped at the maximum. Because the work levy rates and the thresholds are set by ACC and updated each levy year, we confirm the current figures rather than assuming last year's numbers still apply. The single biggest lever you control is your classification code — get that right and the rest follows from the income you have already declared.

When the invoice arrives

The typical rhythm is: you file your IR3 for the year, IRD passes your business income to ACC, and ACC then issues your levy invoice. For a 31 March year-end, that often means the ACC bill lands several months after the tax year has closed, and it covers the year you have just finished.

That timing is exactly why ACC feels like a nasty surprise. The work is done, the tax is sorted, and then a fresh invoice appears for a year that already feels behind you. Your first year is the worst for this, because you can receive a levy for your start-up year and a provisional levy for the current year close together. ACC does offer payment plans if the invoice is large, and you can often spread it, but it is far better to have set the money aside.

Budgeting for ACC

The cleanest way to handle ACC is to treat it like another slice of tax and put money aside as you go:

• Estimate your combined rate. Add your work levy rate, the earner levy rate and the Working Safer levy to get a rough cents-per-dollar figure for your industry.
• Set aside that share of profit into the same savings habit you use for income tax, so the bill is already funded when it arrives.
• Check your classification each year, especially if the nature of your work has shifted to something lower risk.
• Diarise the likely invoice timing so it doesn't collide with a provisional tax instalment unannounced.

This is general information, not personalised tax advice. Your situation may differ, so book a free review to discuss it with us or check the rates with ACC and ird.govt.nz.

In plain English: if you work for yourself, ACC is a second bill on top of income tax that arrives after you file, so set aside a few cents in every dollar of profit and make sure your industry code actually matches the work you do.