ACC owes businesses $100 million plus interest, for levy overpayments dating back to 2002.
ACC became aware of refunds owed to 306,000 business customers early last year while preparing a new levy system.
The Crown entity made the decision not to tell customers of the issue until it knew the extent of the overpayment and had a fix in place. However, it stopped charging levies to the affected groups when it identified the two separate issues.
ACC Minister Iain Lees-Galloway was made aware of the problem in December – at least seven months after the issue was discovered. The previous government had no knowledge of the problem. ACC publicly announced the issues on Thursday, when it began contacting affected customers.
The overpayments stem from two historical issues, affecting newly self-employed people who were working full-time (at least 30 hours a week), and businesses who paid provisional invoices but were not required to do so because of restructuring or ceasing trading.
ACC head of business customer service delivery Phil Riley said about 106,000 newly self-employed were affected during the 16-year period.
This group was owed about $36m before interest. This averaged $340, excluding GST, per person. However, there were outliers, with one customer owed more than $4000.
ACC would also refund about $64m to about 200,000 businesses that paid provisional invoices during the period, when they were not required to do so.
The average refund was $415, excluding GST, per business. However, three businesses were owed more than $100,000, with one owed $154,000.
Riley said to put it into perspective, a third of those affected were owed less than $100.
ACC expected all affected customers would be refunded by April next year. It would work with IRD, the Companies Office, and searching public records if it did not hold current information for affected businesses.
Riley refused to speculate on the cost of the interest owed but said it would date back to when the invoice was paid and would be based on the 90-day bill rate at the start of that year.
Given the number of businesses affected and the 16-year historical period, the interest payments would likely add millions to the total amount paid out by ACC.
Both issues were discovered by ACC staff while looking at replacing the old system.
“ACC has been true to the intent of the regulations that newly self-employed people – like all business-owners – should pay a levy. However, we discovered last year that since 2002 the regulations have been drafted in a way that does not provide for the levying of first-year self-employed to occur.”
Riley said legal staff became aware of the issues while preparing to replace the old levy system, which included a legal check that the new system would be compliant with regulations.
In an effort to make the system simpler and avoid the issue in future, ACC was currently consulting on switching to an arrears payment approach, similar to how self-employed people paid income tax.
The other issue was discovered when staff were preparing to move data to ACC’s new levy system. It showed provisional invoices had been paid by businesses that had subsequently ceased trading or change their business structure, but not informed ACC.
“We very much regret the overpayments, and apologise to anyone who made a payment that was not required,” Riley said.
The focus was now on making things right, he said, adding that ACC “owns this issue”.
The $100m in overpayments equated to 0.37 percent of the levies collected from ACC’s Earners and Work accounts during the period from 2002 to March 2017.
Riley said he did not believe the overpayments had a significant impact on businesses.
The total refund had been factored into the levies ACC was currently consulting on. Its funding policy required it to spread the impacts over 10 years, meaning the refund would account for a 1 cent increase in the Work Account (where a levy reduction was being proposed), and less than 1c for Earners (where a 2.5 percent increase was being proposed).
In a one-line written statement ACC Minister Iain Lees-Galloway said: “ACC and I have agreed that while this is a difficult issue to work through, it’s the putting right that counts.”