This article is the third in a series that explores the failure of the Accident Compensation Corporation to properly compensate self-employed earners since the legislation was amended in 2005. As I have explained, Clause 38 and Clause 39 under Schedule 1 were amended in 2005 to produce fairer outcomes for claimants. Let us examine just how the Corporation took the will of the legislators and buried it under six feet of concrete.
This dispute has been raging for almost two years now and over this period I discovered several serious anomalies that raised significant questions regarding the integrity of the Corporation’s ERC process for self-employed earners. I identified that:
The Corporation has a blanket policy in place that all claimants claiming under Clause 38 and 39 (2)(a) must be in their first year of self-employment. The Corporation’s position is wholly unsupported in law and sits in stark contrast with the Bartrom Principles in the District Court and the High Court.
Clause 38 and 39 are triggered by the presence of earnings received as an employee immediately before incapacity but the Corporation is refusing to compensate said earnings after unlawfully altering the earnings status to earnings received as a self-employed person. The Corporation then claims that the PAYE earnings received in the current tax year are earnings received as a self-employed person in the current tax year that can only be compensated in the previous relevant financial year. As the claimant has no earnings in the previous relevant financial year the infamous division of zero takes place.
The Corporation unilaterally and unlawfully changes the earnings status at the date of first incapacity from PAYE Income Payment (Schedular) to earnings received as a self-employed person thus defeating the employee formulas in the applicable sub-clauses.
As the Clauses have been triggered by the presence of earnings the Corporation must calculate entitlement. The Corporation unlawfully changes the PAYE earnings status and presents an 80% of nil decision which amounts to a division of zero. Such a calculation does not conform to the law of mathematics.
Having refused to compensate said earnings the Corporation then levies the claimant based on the uncompensated earnings in later financial years.
There is no audit system in place to determine who if anyone has been paid out under Clause 38 or 39 (2)(a). The assumption is that exactly no one has ever been paid compensation under those sub-clauses as the process to do so simply does not exist.
There is not one piece of Case Law on 38 (2)(a) in twelve years.
The Corporation is also avoiding paying out for earnings received in the previous 52 weeks as a permanent employee who has left that employment to become self-employed. The Corporation achieves this by deducting business expenses from the employee earnings in a blatant breach of Section 169 A.
169 A Limit on offsets in case of earnings as self-employed person
(1) In determining a person’s earnings as a self-employed person, no offset may be allowed for the amount of—
(a) any net loss of the person for an earlier tax year that might otherwise be offset by the person under sections IA 1 to IA 4, IA 7(9) and IA 9 of the Income Tax Act 2007; or
(b) any part of the net loss of a loss attributing qualifying company (as defined in section YA 1 of the Income Tax Act 2007) attributable to the person as a shareholder of that company under sections HA 20, HA 24, HA 26,HA 27, and IA 7(2) of the Income Tax Act 2007.
(2) If the result of the calculation of a person’s earnings as a self-employed person is a negative amount and the person also derives earnings as an employee, the person’s earnings as an employee must not be reduced by the negative
Naturally I presented these glaring aberrations of process to the Executive and the Executive was not swayed. The message I got was that the Executive had sought advice and the Corporation’s “experts” were “adamant” that the ERC process for the self-employed was indeed correct. Is that so?
The arguments had always centred on the ERC end of the process and it is fair to say that the legal arguments put forward by the Corporation’s vaunted lawyer amounted to nothing but a stream of legal drivel. As the arguments intensified in detail I found myself backtracking through the process to ensure that the legislation did not support the changing of earnings status by the Corporation. As I predicted no such legislation exists, but I did find something else.
There are two levy processes for levying the self-employed. One of these processes, Section 222 covers the invoicing process for self-employed levies and this process is extremely familiar to the Corporation. The Section 222 process is how the Corporation collects levies from all self-employed earners. See where I am going here?
It is now time to introduce my new legislative besties, Section 221 and Schedule 4. Certain types of self-employed earners receive Schedular payments, for example a commission only salesperson. The “employer” is the business who pays out the commissions and at the time of that payment PAYE tax is deducted accordingly.
According to the levy invoices sent to self-employed earners ACC conducts the following process.
“Your invoice has been calculated based on schedular payments declared by your employer. Schedular payments are treated as self-employed earnings because no ACC levy is deducted. “
So here we see the Corporation altering earnings status from Schedular PAYE to earnings received as a self-employed person. ACC openly states that the reason for this is because no levies have been deducted at the time the Schedular payment was received.
I examined the IRD tax information documentation as it applied to a claimant and I noted that there were fields in the document dedicated to ACC levies. All the fields are empty except for one saying ACC levies, $0.00. Therefore, the evidence is as clear as it is compelling. ACC is not levying Schedular payments at the time of payment. ACC changes the earnings status and presents an invoice under Section 222 two financial years later because “no ACC levy is deducted”.
It is at this point the good ship ACC collides head on with the legislative iceberg known as Section 221.
221 Collection of levies by deduction from employee earnings
(1) For the purpose of enabling the collection of the levies payable under section 219 by instalments,—
(a) when an employer or a PAYE intermediary for an employer makes a payment to an employee that is included in the earnings of the person as an employee of the employer, the employer or person must, at the time of making that payment, make a deduction in accordance with this section from that amount on account of the levy payable:
(b) when a private domestic worker receives earnings that are earned in that person’s capacity as a private domestic worker, the private domestic worker must, at the time of receiving that payment, make a deduction in accordance with this section from that amount on account of the levy payable.
(2) Schedule 4 applies to any deduction under subsection (1), and applies to private domestic workers with any necessary modifications.
(3) In this section, PAYE intermediary means a PAYE intermediary as defined in section YA 1 of the Income Tax Act 2007.
Schedule 4 Deductions on account of earner levies
1 Subject to this schedule, the PAYE rules of the Income Tax Act 2007 (the PAYE rules) apply, with all necessary modifications, with respect to—
(a) any amount included in the earnings as an employee of an employer as if such amount were a PAYE income payment (or, as the case may require, salary or wages under section RD 5 of the Income Tax Act 2007) of the employee for the purposes of the PAYE rules; and
(b) the levy payable by any employee under this Act as if such levy were income tax; and
(c) the deduction required to be made under section 221 as if such deduction were an amount of tax, which amount is—
(i) on account of income tax; and
(ii) made or required to be made for the purposes of the PAYE rules; and
(d) any employer under this Act as if such employer were an employer for the purposes of the PAYE rules; and
(db) a PAYE intermediary as defined in section YA 1 of the Income Tax Act 2007; and
(e) any employee under this Act as if such employee were an employee for the purposes of the PAYE rules;—
and every employer, PAYE intermediary, and employee must comply with the requirements of the PAYE rules, to the extent to which the PAYE rules apply by virtue of this schedule.
So, what do we see here. Oh yes, the levy process for levying PAYE Income Payments (Schedular) at the time of payment that the Corporation has failed to implement in its entirety since 2005. The legislation is very plain, but the tax and invoice documents prove beyond any doubt that Schedular payment levies are not being deducted at the time of payment as required by law. The invoice states that ACC is changing the earnings status as levies are not deducted on the PAYE earnings.
The Corporation is now required to explain exactly why said earnings have not had levies deducted at the time of payment when the Corporation, employers and employees are bound by law that requires levies to be paid at the time of payment as described in Section 221 and Schedule 4. An excellent question and I am sure the country will be keen to hear the answer.
The legislators amended the legislation to make it fairer for claimants and the Corporation has efficiently and effectively made the situation much worse for claimants. Instead of arming the Section 221 levy process the Corporation has distorted the process to try and make everything fit the Section 222 process as described in ACC’s own invoice.
Clause 38 and 39 (2)(a) apply only to PAYE employee earnings (Schedular and Salary and Wages) and in the absence of the Section 221 levy process combined with the Corporation’s unlawful alteration of earnings status the result is that Clause 38 and 39 (2)(a) being completely bypassed by the Corporation’s unlawful ERC process.
Now that the source of the various legal aberrations has been identified as the Corporation’s failure to arm the Section 221 levy process, it is unarguable that the Corporation has failed to implement the will of Parliament. Let us now examine what that means.
ACC receiving levies in a timely and cost-effective manner
Section 221 and Schedule 4 requires PAYE Income Payments to be levied at the time of payment. It is evident that the legislators intended this levy process to take over and potentially eliminate the Section 222 levy process. ACC should have been receiving levy payments directly at the time of payment, but ACC has been levying under the Section 222 process that has always existed but is on the way out. (Or at least it should have been)
The result of ACC’s failure to adopt the Section 221 levy process and apply it correctly leads to some serious matters.
a) Every paper levy invoice sent out with the associated costs such as stationary, employee time and postage costs amount to money the Corporation did not have to spend.
b) Every invoice issued on the presence of PAYE earnings in the following financial year places a debt on the claimant that is not supported in law as the claimant should have been levied at the time the PAYE Income Payment (Schedular).
c) As claimants are not levied at the time then ACC is not getting levy payments that should have been paid at the time. This means the Corporation’s books aren’t correctly balanced at any given time.
IRD is bringing more self-employed earners into the PAYE Income Payment (Schedular) regime every year. It is evident the legislators intended on eliminating the previous tax \ levy system over time as more earners are transferred to the PAYE Income Payment regime. This has not occurred as ACC has not implemented the Section 221 and Schedule 4 process.
Essentially ACC is saying: The claimant has earnings that we do not compensate because we have changed the claimant’s earnings status at DOFI and did not get around to levying him / her as required by law under Section 221.
ACC then issues a levy invoice under Section 222 in a following financial year and we bill the claimant based on the presence of the earnings ACC will not compensate. If the claimant is still incapacitated and has not earned since and is struggling to pay up, we hit them with a debt collection agency. Lovely.
The Corporation’s process has resulted in one giant rip off. The self-employed have not been compensated or levied correctly for twelve years. The Corporation has succeeded in ripping itself off as it is not receiving revenue under lawful process. The Section 222 process does not apply, and the Corporation cannot use it to retrospectively levy employee earnings that should have been levied under Section 221.
In short, having regard for the law, the Corporation cannot levy many self-employed persons until such times as the Section 221 process is implemented. That revenue stream is effectively cut off. Well done ACC.
For people who are wondering if they have been personally ripped off the indications that has taken place are:
You have a decision where you are informed you are entitled to 80% of zero.
You had a debt collection agency put on your trail for failing to pay a levy where earnings status was altered.
You were a permanent employee in the 52-week period leading up to incapacity and did not receive ERC due to “business expenses”.
If any or all of these circumstances apply to you it is likely you have been officially ripped off the Accident Compensation Corporation. Even if you have been paid it would pay to check if you are receiving your full entitlement.
The Corporation’s experts have brought the Corporation to its knees. The argument for a commissioner and independent auditors is compelling. For all of you done over by the incompetence and hubris of Corporation staff and providers, now is your opportunity to express your umbrage. Please feel free to do so.
Welcome to the Apocalypse