Jeremy Tauri: Avoid ACC trap

People don't tend to think about insurance until its too late.

ACC is something that people tend not to think about too much when they're beginning their journey into self-employment.

Understanding how the ACC system works can affect the amount you could be eligible for in the event of an accident.

From what I've seen, most insurance advisers now take steps to discuss ACC Cover Plus Extra - the agreed sum insurance of ACC - to tie into how other insurance payouts work in the event of a claim.

Although ACC provides a standard cover that means if you have an accident you are paid out 80 per cent of your earnings, Cover Plus Extra is for the self-employed, allowing them an agreed amount of cover. This is useful if your earnings change or you're starting a new business or in industries where earnings change year-to-year.

ACC payouts are calculated on the prior year's earnings. If you don't have Cover Plus Extra, you're gambling because your payout could be based on a bad year. Talk to your insurance adviser and accountant to be sure you're covered adequately.

Some people prefer private insurance policies. ACC can pay out at least the minimum after one week whereas some insurance policies' wait period is 13 weeks before a payment. You need cover that works for you.

ACC receive information from the IRD. So, if you do your own tax return make sure to put the right details in the right fields. If you receive ACC bills for passive income, ie, a rental property, it's possible that income is not being recorded in the right area of a tax return. In future it may be difficult to change this over the phone with ACC. They may direct you to IRD to change the information. This can mean delays and costs.

ACC is payable on a taxable activity so, if you're winding up a business with significant assets, if the activity has stopped you must pay ACC on any depreciation recovered from the sale of assets as it's earned passively.