Quitting my job in June. Want to work for myself. Need some tax and general advice.

[sutekj]

I'm a PHP developer (6 years experience). I get paid per hour of work that I do.

My first question is, would it be worth it for me to register a company, or should I just invoice my clients directly? What do I need to know about taxes?

I've been doing some freelance work for a guy the past month. I've let him know that I'm willing to take on his project full time. He told me he's keen to go ahead with that, but that he can only sustain the cost for three months. He will basically pay me slightly more than my current salary. So I told him I'm fine with that, and that we can start in June. My plan is to then try to find more clients in these three months and see if I can make the move to working for myself permanently. I've got another possible client or two lined up.

I trust the guy to pay me. He was very quick to pay after my first invoice. Should I get him to sign anything else just for safety?

I've got one month's living expenses saved up. If I don't find clients to sustain me, I'll just look for a job at a company again, but I'd really like to make the leap to working for myself, so will put in any effort needed to make this work.

All advice will be appreciated!

 

[DominionZA]

As a contractor clients are much happier that I trade through a CC as they don't have to be bothered about income tax. Not sure if you can do it yourself. Someone can chip in here.

I pay an accountant about R1k per month to manage my taxes etc... And I pay myself a salary from the CC. I put as many expenses as I legally can through the CC to reduce what I need to pull as a salary.

EDIT: You need a bill quite a bit more than you got paid in a perm position. It can happen you run out of work and you need cash in the bank to see you through. That said, only happened to me once in the middle of the recession. Clients budgets all dried up and I had nothing for 3 weeks. You never know though.

In your position, I would not quit the day job until you have stable income coming from other sources. I went solo in 2004 and started building my client base in 2002. I was cheaper than other contractors to get business in, with the understanding that I could only work evenings and weekends - and clients were happy with that. Win/win. Was a tough 2 years working 16 hours a day, but it paid off. If you don't have a family, then suppose you don't need to be so cautious.

 

[Pho3nix]

Have more than one client. Get a good couple (3-5) before you quit your perm job. As Mike said, you will need to bill a bit more to cover expenses and you will need at least 3 months income saved up of you want to make the jump.

Get an accountant or income specialist to help with your taxes.
Off the top of my head, these are some of the things you should look into. Like your moxy towards having your own business but do he part-time gig a little longer before you do the jump. Dev jobs seem easy to get back into but have a couple mates that are still having trouble getting back into the industry.

My 3 cents..

 

[Venomous]

You are going to hate me...

BUT


I would caution that you have at least 6 months liquid cash, if you stumble and then need to get new work, and then need to wait to get paid...

Also have at least a dozen clients, that way there is a better chance of consistant work.

 

[MrGray]

Keep it as simple as possible at first. Freelance initially if you can and try to build up a cushion for when/if you formally become a company.

The biggest factor people don't realise in having their own company is the amount of time you'll spend on everything other than actually producing work. Bookkeeping, general bureaucracy, SARS, marketing, client quotes and meetings end up taking 80% of your time, leaving precious little for actual production, so going it alone with your own company can be very stressful at first.

One of the biggest time overheads with your own company is the sheer quantity of regulatory and tax bureaucracy, so you either need to be prepared to spend at least a day per week on paperwork, or you need to find a good bookkeeper who will work on retainer to do all those things, and even then it is time consuming as you have to be aware of everything they're doing.

You cannot register a cc any more, and SARS makes it very difficult to register for VAT. It is worthwhile in the long run, but can be very frustrating. Also bear in mind that if you freelance as an individual, if more than 70% (or 80%?) of your income is derived from a single source, you will be considered an employee of that source.

 

[paul5186]

Can you not buy/transfer a cc into your name?

 

[R13...]

Can you not buy/transfer a cc into your name?

Yes. Lots of shelf companies available to buy, makes the process a bit easier than starting from scratch.

 

[ZodiacLegend]

GOOD LUCK !

Another option to consider is to have your own small team of DEV developers who you can contract out to various clients.

Yes, you would have to work out a decent figure to pay them, but your time won't be that hectic. You would need to have some personal time for yourself or your family and friends.

Interview a few people that you will be able to trust and they need to be responsible and punctual.

 

[Sonic2k]

I am about to make this jump.
Here is my checklist

* 6 months' salary cover in the bank
* Customer base built by doing "private jobs" for various people over the last 2 years. Word of mouth got me out there and got me
more customers.
* Regular clients (so much so I cannot cope- I need to leave formal employment otherwise I cannot get customer's work done)
Day job is actually now an insult, pay is crap, increase was a joke.
* Cellphone now prepaid
* Credit cards for JIC (useful should I need a business loan, because once I am on my own the banks won't touch me)
* Marketing strategy in place - actively seeking new clients
* One killer app type product in development
* Effective debtors' control
* Procured tools and equipment from 2011 to present, all paid for. All that is now needed is a Macbook Pro..
* All that is needed in terms of connectivity is a business account from either Afrihost or Axxess.

See you all on the other side soon

 

[ToxicBunny]

Good luck dude..

 

[iFan]

Good Luck mate!

 

[MartyMarts]

...if I could go back in time, I wouldn't have quit my day job. I'm a lazy f*cker and should have listened to the advice I was seeking [and given] at the time.

Whatever happens, good luck

 

[d0b33]

I quit my job 2 months back, registered my company a year ago but still working on sorting out SARS and CIPC. In the meantime freelancing and make a bit more than my previous job, no regrets and I saved enough before I quit.

 

[sutekj]

It's great to hear from so many cool people! Thanks for the input. Glad to hear there are more people doing this.

Thanks for all the advice. Especially from people with experience.

Can you not buy/transfer a cc into your name?

Any reason to get a cc instead of registering a pty ltd? or a sole proprietor or partnership?

Also bear in mind that if you freelance as an individual, if more than 70% (or 80%?) of your income is derived from a single source, you will be considered an employee of that source.

What difference does that make to me in terms of tax? What if I decide to keep working part time for now. Will my main job and part time work count as different sources?

 

[Venomous]

It's great to hear from so many cool people! Thanks for the input. Glad to hear there are more people doing this.

Thanks for all the advice. Especially from people with experience.


Any reason to get a cc instead of registering a pty ltd? or a sole proprietor or partnership?



What difference does that make to me in terms of tax? What if I decide to keep working part time for now. Will my main job and part time work count as different sources?

yes, 2 incomes. second will be taxed heavier than the first.



Try get cash payment where possible to buy food bits here and there.

 

[sutekj]

I didn't realise a second income will get taxed more. How much more? Where can I read about the rules?

I assumed that in the end I would just get taxed exactly the same as if all my income was from one source.

So basically, my employer will pay my normal income tax. The contract work that I do will be paid to me fully, without deducting tax. Then, when tax return time comes, I declare my extra income, and SARS tell me how much I owe them.

I probably need to speak to an actual tax person about this :/

 

[HavocXphere]

I didn't realise a second income will get taxed more. How much more? Where can I read about the rules?

No idea what the fk venom is talking about there...but I'm inclined to call bullsht. You get taxed on total taxable income...whether that comes from one source or 10 sources does not matter.

I probably need to speak to an actual tax person about this :/

Bingo.

I'd also caution against any kind of "register a company and score tax" scheme. Firstly there are rules in place against this (specifically) and second...think about it...SARS does this all day long...you are a programmer & don't know sht about tax (no offence)...the inspired tax dodging ideas aren't as great as you think they are. You still see people online pushing tax "tricks" that SARS fixed 5 years ago. Do what Mike does and pay a pro...though 1k pm seems a little steep to me...

 

[Venomous]

No idea what the fk venom is talking about there...but I'm inclined to call bullsht. You get taxed on total taxable income...whether that comes from one source or 10 sources does not matter

makes a correction.... for your benifit, sweet cheeks

http://www.sars.gov.za/TaxTypes/PIT/Pages/Income-from-two-sources.aspx

sars will add all his income together and then that will automatically push the income into a higher tax bracket.
SARS also says that even if the companies do their normal tax deductions, it is likely not to be enough and a co-payment would be required.

So effectively you pay more tax on both incomes, not just on the second one.

 

[Messugga]

makes a correction.... for your benifit, sweet cheeks

http://www.sars.gov.za/TaxTypes/PIT/Pages/Income-from-two-sources.aspx

sars will add all his income together and then that will automatically push the income into a higher tax bracket.
SARS also says that even if the companies do their normal tax deductions, it is likely not to be enough and a co-payment would be required.

So effectively you pay more tax on both incomes, not just on the second one.

He's not going to get taxed higher other than for his second income being taxed at his marginal tax rate.
You're confusing.

 

[Venomous]

He's not going to get taxed higher other than for his second income being taxed at his marginal tax rate.
You're confusing.

Please read the SARS site link I posted. They say they combine the taxable incomes. IE if the combined jobs earn you R350k per anum, SARS will tax you on the 350k bracket, not on the tax for say, 200k and 150k, seperately. So you will pay a higher tax earning that than your neighbours where the husband and wife team earn 200k and 150k respectively.