Changes confirmed by Government
Cabinet has announced their decisions following our levy consultation. After reviewing your feedback, they have decided to proceed with the changes to levying self-employed customers. If you’re self-employed this means we will use the income from your tax return to calculate a levy for the same year.
This means that:
- you won’t receive an invoice from ACC next year
- your income from the 2019 tax year will never be used to raise a levy. This is because the 2019 levy obligation was based on 2018 income which will be the old rules. And the 2020 levy obligation will be based on your 2020 income, which will be the new rules.
We plan to contact self-employed customers in 2019 to make sure they understand what these changes mean for them.
If you’re self-employed, you pay the Work and Earners’ levies. We use these levies to cover accidents that happen at work and during everyday life, outside of work and off the road.
Our original proposal
Self-employed customers receive an invoice for their levies after they file their income tax returns. We use the income from that return to calculate their levy obligation for the current year.
For new businesses, this can be confusing as the rules say we must base levies on the income earned in the year before you became self-employed.
The current rules are not easy to understand and are hard to administer. Customers have said that they don't understand the current rules, where they're paying a levy for one year based on the previous year’s income.
The Minister for ACC is proposing to change the rules so that they align with basic tax rules. We would use the income from your tax return to calculate a levy for the same year.
The impacts of the proposal on ACC
This would mean that around $134 million would be collected a year later than it otherwise would have been. Not having this money would mean we miss out on the investment returns we would usually receive.
Missing out on $134 million in levies for the year 2020 will result in an ongoing loss of approximately $5.3 million per annum for the scheme.
Our investment income is a key way we keep the cost of the scheme as low as possible. The more income our investments bring the scheme, the less levies you pay.
The impacts of the proposal on you
- Firstly, you won’t receive an invoice from ACC next year
- Secondly, your income from the 2019 tax year will never be used to raise a levy. This is because the 2019 levy obligation was based on 2018 income which will be the old rules if this proposal goes ahead. And the 2020 levy obligation will be based on your 2020 income, which are the proposed new rules.
These changes won’t affect any entitlement to weekly compensation.
Should we address the delay by allowing you to pre-pay levies?
To address the loss of investment income the delay will cause, we’re considering introducing some form of pre-payment. It’s the same way Inland Revenue collects provisional tax during the year in expectation of a final tax liability.
Pre-pay options for paying your levies will help you to better plan for your levy obligations.
If this proposal is approved, we'd investigate a pay-as-you-go arrangement with any customers who wish to manage levies in a similar way to their tax obligations.
We'll have to introduce pre-payment rules
When looking at introducing changes to the way we collect money, we consider how other government agencies such as Inland Revenue, already do this.
If we were to introduce similar pre-payment rules, we’d have to:
- align to Inland Revenue’s $2,500 threshold. It wouldn’t impact many levy payers as only 2% of levy payers have a levy bill of more than $2,500, or
- we could set a lower threshold. This means introducing new, potentially complex rules for relatively small amounts of money and having different obligations than Inland Revenue.
If you want more detail on this topic and the thinking behind what is being proposed, see the full consultation document.