ACC CoverPlus Extra in the First Year of Self-Employment (NZ)

In your first year self-employed you have no income history, so default ACC CoverPlus can pay you almost nothing if you are injured. Here is why CoverPlus Extra fixes that, and how provisional levies and the year-one wash-up work.

Going self-employed changes how ACC works for you, and the change matters most in year one. As an employee, your ACC cover and your levy both tracked the wages on your payslip. The day you start trading for yourself, ACC has no payslip to look at. It has to fall back on your last tax return, and in your first year, that return is for a job you no longer have, or it does not exist at all.

That gap is the quiet problem with default ACC cover for new business owners. This guide explains how ACC treats you when you first go self-employed, why standard CoverPlus can pay you very little if you are injured early on, and how CoverPlus Extra is designed to close that gap. It also walks through provisional levies and the first-year wash-up, so the invoices make sense.

TL;DR: Default ACC CoverPlus pays weekly compensation at up to 80% of your last filed liable earnings.¹ In your first year self-employed you usually have little or no filed self-employed income, so a serious injury could leave you on very little. CoverPlus Extra lets you agree a fixed cover amount up front, paid in full regardless of income history.² ACC covers injury only, not illness.⁹

How does ACC work when you first go self-employed?

When you are self-employed in New Zealand, ACC cover is not optional. You are automatically placed on CoverPlus, the standard work-account cover, and you pay levies on your liable earnings each year. CoverPlus has two jobs: it pays your treatment costs if you are injured, and it pays weekly compensation to replace some of your income while you cannot work.¹

The weekly compensation is the part that behaves differently in year one. ACC works it out from the liable earnings on your most recently completed tax return.¹ For an employee moving into self-employment, that most recent return often shows salary or wages from the job you have just left, or, if you have only just filed, it may show no self-employed income at all. ACC pays on what is on the return, not on what you expect to earn this year.

There is also a levy timing quirk. Because ACC cannot see your self-employed income until you file, it charges provisional (estimated) levies through the year and squares them up later.³ We come back to that below.

Why might default CoverPlus pay you almost nothing in year one?

This is the part new business owners are most often caught out by. CoverPlus weekly compensation is up to 80% of your last declared liable earnings.¹ If you have no declared self-employed earnings yet, 80% of very little is very little.

A few common first-year situations make the point:

You left a job mid-year to start a business. Your most recent return shows part-year wages, or last year's full wages, but ACC may not treat those the way you would hope once you are trading on your own account.
You have not filed a self-employed return yet. A new sole trader can spend most of the first year with no completed self-employed tax return for ACC to base compensation on.
You reinvested everything. Many new businesses run at a low or nil profit in year one by design. CoverPlus would base your payment on that low figure, not on the income you are working towards.

ACC does apply a minimum for full-time self-employed people (those averaging 30 or more hours a week), so you are not left on literally nothing. For the 2024/25 levy year that minimum liable income was $44,250.⁴ But a minimum-based payment is a long way below what most people actually need to cover a mortgage and living costs, and it is set by ACC, not chosen by you.

If you work fewer than 30 hours a week you can ask ACC to class you as part-time, so the levy is based on your actual earnings rather than the full-time minimum.⁷ That can reduce your levy, but it does not solve the underlying problem: with no income history, default cover may still pay very little.

How does CoverPlus Extra fix the no-income-history problem?

CoverPlus Extra (CPX) is optional cover you apply for. Instead of looking backwards at a tax return, you and ACC agree a fixed level of weekly compensation in advance, and that agreed amount is paid in full if an injury stops you working, regardless of your proven earnings.² For someone with no income history, that is the whole point: you set the cover based on what you reasonably expect to earn, rather than being stuck on a thin or non-existent prior-year figure.

The chart below shows the shape of the problem. The numbers are an illustration, not a quote.

Year-one ACC payout: default CoverPlus vs CoverPlus Extra

``` Weekly compensation, newly self-employed person, no income history

Default CoverPlus ████░░░░░░░░░░░░░░░░ based on ACC minimum / nil history CoverPlus Extra ████████████████████ 100% of the amount you agreed up front ```

Illustration only. Default CoverPlus pays up to 80% of last filed liable earnings, which can be at or near the self-employed minimum when there is no income history;¹⁴ CoverPlus Extra pays the agreed amount in full.² Your actual figures depend on your cover, earnings and the levy year. Source: ACC scheme rules; Smiths Financial scenario.

There is a trade-off to be honest about. With CoverPlus, your levy follows whatever income you actually file, so a quiet first year means a smaller levy. With CPX, you pay a levy on the agreed cover amount from the start, which can be higher than a default first-year levy on minimal income. You are paying for certainty. Whether that is worth it depends on your debts, your dependants and how much risk you are comfortable carrying in the early, vulnerable stage of a business.

How do provisional levies and the wash-up work in your first year?

Because ACC cannot see your self-employed income until you file a return, your first-year levies are provisional, an estimate. ACC then washes them up against your actual liable earnings once your return is filed, and either bills you the difference or credits you.³ This is normal, and it is the single biggest reason first-year ACC invoices feel confusing.

In practice it tends to run like this:

Stage	What happens	What to expect
You register as self-employed	ACC sets a provisional levy from an estimate (often your declared expected income, or a default)	An invoice based on estimated, not actual, earnings³
You trade through the year	You pay the provisional levy	Cash out before your income is confirmed
You file your tax return	ACC sees your actual liable earnings	The figures finally line up
ACC washes up	ACC compares actual vs provisional and adjusts	A top-up bill or a credit, plus the next year's provisional levy³

Two practical points. First, the earners' levy and your liable income are capped: for 2024/25 the maximum liable income was $142,283, and the earners' levy rate was 1.60% ($1.60 per $100), giving a maximum earners' levy of $2,276.52 at the cap.⁵⁶ Second, a wash-up can land as a larger-than-expected bill in your second year if your first year went better than estimated, so it pays to set money aside rather than spend the provisional saving.

CPX does not remove provisional levies, but it does remove the year-one cover uncertainty, because your compensation is fixed at the agreed amount no matter what your return eventually shows.

How much CoverPlus Extra cover should a new business owner choose?

There is no single right number, and we cannot tell you yours in a general article. But the factors that sensibly drive the decision are the same for most new business owners:

Your realistic expected income, not last year's wages and not a hopeful best case.
Your fixed commitments — mortgage or rent, loan repayments, core living costs.
Who depends on you, and whether a partner's income would keep things afloat.
The cover band ACC allows for CPX, which moves each April, and which sets a floor and a ceiling on what you can agree.

A common first-year approach is to set CPX at the income you expect to be earning once the business is established, rather than the slim figure you might file for year one. That keeps your cover aligned with the loss you would actually face. Our companion guide on how much CoverPlus Extra cover to choose works through the bands and the trade-offs in more detail, and the broader guide to insuring a sole trader puts ACC alongside the other cover a one-person business usually needs.

What happens to your levies once you have a full year's income?

The first-year fog clears once you have filed a complete self-employed return. From then on, ACC has real liable earnings to work with, and:

Your provisional levy for the new year is based on your actual filed income rather than an estimate.³
If you are on default CoverPlus, your weekly compensation entitlement now reflects that filed income, so the year-one no-history problem is behind you.¹
If you are on CoverPlus Extra, your cover stays at the agreed amount, and it is worth reviewing that figure each year so it keeps pace with your growing income rather than drifting on an old setting.²

In other words, default CoverPlus becomes much more reasonable once you have a track record. The risk window is mainly that first stretch, before any self-employed income is on file. That is the period CPX is built for.

How does this sit alongside income protection for illness?

This is the limit that catches the most people out, so it is worth being clear. ACC covers injury only. It pays nothing if illness stops you working, whether that is cancer, a heart condition, or many back and mental-health conditions that are not the result of an accident.⁹ CoverPlus and CoverPlus Extra share this limit. Sorting out your ACC cover does not close it.

For most self-employed people, illness is at least as likely as injury to be the thing that keeps them off work for an extended period, and ACC was never designed to cover it. The complementary cover is private income protection insurance, which can be structured to pay when sickness, not just an accident, stops you working. As an independent adviser, Smiths can compare income protection across the major New Zealand insurers and line the wait period and benefit period up with your ACC arrangement, so you are not paying twice for the same accident cover. ACC and private cover are two halves of one picture, and year one is a sensible time to set both up properly.

A first-year ACC checklist for the newly self-employed

1. Confirm you are registered with ACC as self-employed, and check which cover you are on. If you have not chosen, you are on default CoverPlus.

2. Work out what default CoverPlus would actually pay you based on your last filed return. If that is near the minimum, treat it as a flag, not a plan.

3. Decide whether the year-one gap matters for your situation — mortgage, dependants and savings buffer are the usual deciders.

4. Get a CPX figure that reflects your realistic expected income, and check it against the current cover band.

5. Budget for provisional levies and the wash-up, and set money aside so a second-year top-up bill is not a shock.³

6. Plug the illness gap with income protection, since neither ACC option covers sickness.⁹

Frequently asked questions

Why does default ACC pay so little in my first year self-employed? Default CoverPlus bases your weekly compensation on up to 80% of the liable earnings on your most recently filed tax return.¹ In year one you usually have little or no self-employed income filed, so the calculation can land at or near the ACC minimum for full-time self-employed people, which was $44,250 of liable income for 2024/25.⁴ That is often well below what you would need to cover your costs.

How does CoverPlus Extra help if I have no income history? CoverPlus Extra lets you agree a fixed level of weekly compensation in advance, and ACC pays that agreed amount in full if an injury stops you working, regardless of your proven earnings.² That means you are not held back by the absence of a self-employed tax return in your first year.

What are provisional levies? Because ACC cannot see your self-employed income until you file, it charges an estimated (provisional) levy through the year, then squares it up against your actual liable earnings once your return is filed, billing the difference or issuing a credit.³ This is standard in the first year because your income is being estimated.

Does CoverPlus Extra cover illness? No. ACC, including both CoverPlus and CoverPlus Extra, covers injury only and does not pay weekly compensation for illness.⁹ If you want cover for when sickness stops you working, you need separate private income protection insurance.

What is the most ACC will pay in weekly compensation? Weekly compensation is calculated on liable earnings up to a cap. For 2024/25 the maximum liable income was $142,283 and the earners' levy rate was 1.60%, giving a maximum earners' levy of $2,276.52 at the cap.⁵⁶ Earnings above the cap are not covered by ACC, which is one reason higher earners often add private income protection.

Can I reduce my ACC levy if I work part-time? If you average fewer than 30 hours a week you can ask ACC to be classed as part-time, so your levy is based on your actual earnings rather than the full-time minimum; 30 or more hours a week is treated as full-time.⁷ This affects your levy, not the underlying point that default cover can pay little when you have no income history.

This article is general information only and is not personalised financial advice. It does not take into account your particular financial situation, goals or needs. Before acting, consider whether it's right for you and seek advice tailored to your circumstances. Craig Smith Business Services Ltd (FSP712931), trading as Smiths Financial, holds a Class 2 licence issued by the Financial Markets Authority to provide financial advice, and is a member of the Financial Dispute Resolution Service (FDRS). Whether a claim is paid depends on the terms, conditions, exclusions, stand-down periods and underwriting of the specific policy, and on your disclosure. ACC levy figures, thresholds and rates are set by Government and can change; figures are correct as at 30 January 2025 — check current figures at acc.co.nz and ird.govt.nz. Written by Henry Smith, Financial Adviser; reviewed by Craig Smith, Principal Adviser. Last reviewed 30 January 2025.

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