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Eight ACC Traps
Nick Roberts • July 23, 2015
At this point the client lost interest, presumably because he thought I would charge him for looking at the bill. Reflecting upon this later, it always surprises me why clients pay ACC bills without question yet always ask about their Income Tax bills. Many ACC bills are incorrect and as ACC is expensive you can end up paying much more than you should.
Here are some common traps to watch out for:
- Wrong ACC Classification. Make sure ACC know your correct levy classification e.g. what your trade or profession is. If they don't know (and even sometimes when they do know!) they choose an expensive trade as the default classification - manufacturing seems to be their favourite! This could double your ACC bill.
- Multiple Activities . If you operate more than one trade in the same entity then you get charged ACC on the riskiest classification. To get round this it may be worth operating through more than one entity as the alternative (keeping very detailed and extensive records of each activity) is very difficult and rarely accepted by ACC. Otherwise, if the income from the risky activity is low it may not be worthwhile even doing!
- More Than One Source of Income. If you have different sources of income e.g. employed as well as self-employed or two employments, you can pay too much ACC unless you tell ACC and ensure that they are fully aware of your circumstances. Often you can only get the ACC back after the end of the tax year.
- Passive Income. Some types of income, although originating from business, are regarded as "passive" for ACC purposes and ACC is not charged e.g. rental businesses where you use a rental agent or where you own a farm but use a sharemilker. If you're running the rental property through a company, and distribute the income as shareholder salary, this would also be levied as active income. Where income from 'passive' rental has been distributed to the shareholder as dividends, these are not subjected to ACC levies.
- Incorrect Full Or Part-Time Classification. Your ACC bill depends on your full or part-time status, dependent on whether you work 30 hours or more a week. Information on your full or part-time status no longer flows through to ACC's database from the IRD. If you held part-time status last year and this year your earnings crossed the threshold you will receive a letter from ACC automatically confirming your change to full-time status. In all other scenarios it is up to you to formally confirm a change of status with ACC. The other point about being part-time is that you will only pay ACC premiums on your actual earnings whereas if you are regarded or treated as full-time, you will pay ACC premiums on the current level of minimum earnings as set by ACC, currently $29,640.
- Dialling Down ACC Cover with Cover Plus Extra Without Income Protection Or Life Cover.
You can cut your ACC bills considerably by opting for ACC Cover Plus Extra whereby you agree the level of cover with ACC which suits you. If, for example, you are well off you may be able to cope without income for some while. Or perhaps your business will continue to make money irrespective of whether you are able to work in the business. Or maybe your spouse can support you? However, it is important to make sure that you don't reduce (called dialling down) your ACC cover without adequate income protection insurance or life cover.
ACC Fatal Death Benefits are very substantial where children are involved and not to be missed out on. Take, for example, an earner on $80,000 income who dies an accidental death with a spouse and two children of 4 and 7. Collectively they will receive benefits of over $1m. If, on the other hand, the earner had reduced his ACC income to $22,000 the benefits would reduce to $368,000, a very substantial reduction indeed! - Tax Deductible. Not all ACC levies are tax deductible. In particular, for shareholder-employees only part of the ACC levy is deductible and neither can you recover all of the GST added to the levy. If you are a shareholder employee and have opted For ACC Cover Plus Extra then all of the ACC levy is deductible but it becomes employment income to the shareholder-employee which defeats the object somewhat. The GST on ACC Cover Plus Extra for shareholder-employees is only recoverable if they are GST registered.
- Non-Fieldwork Spouse/Partner. It's very common in husband and wife businesses for the husband to be out doing the fieldwork and the wife to be in the office. Unless the wife is on ACC Cover Plus Extra she still gets charged ACC based upon her husband's trade. One way round this (other than the hassle of applying for Cover Plus Extra) is to operate via a partnership whereby the wife will pay ACC on her own activity.
ACC can make a huge difference to your life and prosperity, so it's best to get it right! At A+BAC we are experts on ACC and can guide you through the complexities.
High, low or somewhere in the middle? Where to pitch realistic charge-out rates is a common question facing trades, service and professional businesses.
In fact it's probably one of the most difficult areas of business. You have to be careful not to underprice as this will reduce profits, but at the same time, overpricing could turn customers away.
Setting charge out rates is just as important as marketing and delivering a fantastic service. You can do these two things excellently and then undo the lot by setting charge out rates too low or too high. This means pricing is a complex strategy that should be carefully undertaken and reviewed.
Read more here
Do you wonder sometimes why your Council rates are so high and what they do with all the money? Especially when you see Council workers (as hard working as I'm sure they are) using leaf blowers on the Havelock North to Hastings cycle path?
Finding the money to pay your rates is hard enough as it is, but when you're in business and you have a bad year it's even harder, so did you know you can get a rates rebate if your income drops below a minimum threshold? The threshold level varies depending on your income and situation, but for example, a household with an income of $30,000 and one or two kids could get a $600 rates rebate. And then, even better, you can take the kids to Splash Planet and get in cheaply with a copy of your rates bill!
For further details click here, or email Nick for help if you're not sure what to do next.
n previous blogs we've talked about cutting ACC costs by switching to ACC Cover Plus Extra. However, you need to make sure that if you reduce the level of your ACC cover, that you have adequate life cover in the event of your untimely demise.
This is because ACC pay out Fatal Death Benefits, the amount of which depends on your income for ACC purposes and the amount of the ACC payout can be very substantial.
A spouse is entitled to 60% of the 80% ACC entitlement for 5 years whilst children (via the spouse) will receive the benefits until they turn 18 at 20% each up to 40% in total.
Take, for example, an earner on $80,000 income who dies an accidental death with a spouse and two children of 4 and 7. Collectively they will receive benefits of $1,049,600. If, on the other hand, the earner had reduced his ACC income to $22,464 the benefits would reduce to $368,410, a very substantial reduction indeed!
So, if you want to reduce your ACC premiums by switching to ACC Cover Plus Extra, you have three options:
Take care not to die accidentally!
Get adequate life cover
Stay single without any dependants!
If you need help with ACC, contact me at Accountancy + Business Advise Centre.
The availability of your annual financials is a wonderful opportunity to review your business performance. You can discover how to improve your business as well as refresh your enthusiasm and drive in the business.
Click here to read seven ways you can use your annual financials to improve your business.
Your annual financial statements have their uses, but by their very nature, they are far too historical to be of any use in managing or improving your business.
The most valuable financial accounts you can get your hands on are interim accounts prepared periodically - monthly for larger businesses or quarterly or bi-monthly for smaller businesses in line with your GST return periods. There is a strong correlation between the availability of interim accounts and business survival.
Find out here what having interim accounts to hand means for you
These are the four most common courses of action you can take if you can't pay your tax:
o get some advice (we'll be happy to help) and take action today!
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Preparing an annual cash flow forecast can tell you a lot about your business. It can warn you with plenty of time to spare that you're not going to have enough cash to survive the next year without getting additional working capital - which is vitally important to know. Or it could be the wake-up call you need to make some changes in your business. You might need to make a tweak or two, like increasing prices or shedding ineffective staff, or you could discover something more serious, such as you're in a twilight business and it's time to move on.
Read more on how to prepare and read your forecast here.
Just how much do you know about your business? No, not about what you sell, or how you make or deliver your products and services, I mean the really important things that determine whether you're going to make it through to retirement or maybe even successfully selling your business.
These are my top eight favourite things each and every one of us business owners should know about our businesses.
I've said this before (and no doubt I'll say it again) but I'm always surprised at the lack of simple systems utilised in owner-managed businesses. Using the word "systems" can be off-putting because people immediately think it's going to be too complex, too costly or too time consuming but a system can be very, very simple.
Using systems makes a huge difference to the way a business operate, read more here.