Almost every first-year sole trader gets the same surprise: an ACC invoice they did not budget for, separate from their income tax. Here is what it is, how it is worked out, and how to make sure it never catches you off guard.
Quick answer
If you earn self-employed income, you pay ACC levies that fund cover for injuries. They are separate from your income tax and invoiced directly by ACC, usually calculated from the profit you declare on your IR3. Because the invoice often arrives some months after you file, plenty of sole traders are caught out in their first year. The answer is simply to budget for it as a known cost.
The detail, in plain English
There are two parts to what a self-employed person pays:
- The work levy covers injuries at work and is based on your type of work (your classification) and your earnings.
- The earner levy covers non-work injuries and is a flat rate on your liable earnings.
How it flows in practice:
- You file your IR3 showing your self-employed profit.
- ACC uses that profit to set your levies and sends an invoice, typically after the tax year is filed.
- Most sole traders are on the default CoverPlus cover, which bases your entitlement on your most recent declared income.
- CoverPlus Extra is an option that lets you agree a fixed level of cover in advance, useful if your income swings around.
The timing is the main trap. Your tax and your ACC levy are two different bills, arriving at two different times, both driven by the same profit figure.
A simple example
A self-employed tradesperson files an IR3 showing a profit of $65,000. Their bills end up being two separate things:
| Bill | Driven by | Who sends it |
|---|---|---|
| Income tax (and any provisional tax) | $65,000 profit | IRD |
| ACC work + earner levies | $65,000 profit + work classification | ACC |
If they had only budgeted for the IRD bill, the later ACC invoice would feel like an unexpected extra, even though it was always coming. Set aside a small percentage of profit for ACC alongside your tax and it becomes a non-event.
Common mistakes to avoid
- Assuming ACC is inside your income tax. It is a separate bill from a separate agency.
- Not budgeting in year one. The first invoice can lag your first IR3 by months, so put money aside early.
- Wrong work classification. A misclassified activity can mean paying the wrong work levy.
- Ignoring CoverPlus Extra. If your income is lumpy, agreeing cover in advance can give certainty.
Where this fits in your return
Your ACC levies are driven by the profit on your IR3, and the levies themselves are a deductible business cost in the year you pay them. The broader ACC picture, including employees, is on our ACC levies explainer, and budgeting for ACC fits naturally into your first year in business planning.
How Fernway can help
We make sure your work classification is right, build ACC into the amount you set aside each month so the invoice is never a shock, and check whether CoverPlus Extra would give you better certainty. We also claim the levies correctly as a deduction. Fixed fee, agreed before we start.
Book a free 20-minute review and we will fold ACC into your tax plan.
This is general information only, not personalised tax advice. Confirm your situation with us or check ird.govt.nz.
In plain English: ACC is a separate bill from your income tax, based on the profit in your IR3, so budget for it as a known cost and check your work classification is correct.
This is general information, not personalised tax advice.See our full disclaimer.