Starting a tiny consulting business...

[DJ...]

That's a rather facetious method of widening the tax net. Ultimately if it hampers cash flow to people and businsesses then in the long run you've widened your tax net but lowered collection revenue. Herpaderp. I guess the logic here is that it's easier to enforce against more tax payers than it is to organically widen the tax net...

 

[AchmatK]

Agreed. You should read the Tax Practitioners Act and see in what position that puts me in with regards to reporting irregularities to SARS that I may encounter. Tax Practitioners have basically become the eyes and ears of SARS.

 

[Willie Trombone]

I think this is it. Thanks for the insight. Its new to me but I believe its what's in play here.

If more than 80% of your invoiced work comes from a single client, you are deemed an independant contractor and that client must withholld tax at 25%.

You still claim expenses etc. But reconcile on your ITR12 annually.

Sent from my BlackBerry 9300 using Tapatalk

 

[AchmatK]

Interesting. Never encountered that before, but I've never been reliant on a single client. How does the client become aware of your financial status though? Is it a required disclosure?

Guidelines from SARS on determining the nature of employment and earning(14.1 on the first link regarding standard and non standard employment) and determining how to apply PAYE. Second link refers to determining the financial status (Interpretation Note 17)

http://www.sars.gov.za/AllDocs/OpsD...respect of Employees Tax - External Guide.pdf

http://www.sars.gov.za/AllDocs/Lega...7 - Employees Tax Independent Contractors.pdf

 

[hsmnel]

Any details on how that disclosure works re: the 80%? Is it a good faith disclosure? And how does a small business quantify this upon assumption of work? Their invoice amounts may vary (as they do with small businesses) and the company might take on new clients in the year, at which point they have operated at a cash flow disadvantage of up to 25%. I can see it from SARS's point in terms of there being an opportunity to evade a portion of tax if people adopted this approach, but surely there are other mechanisms which would be far more efficient? I mean SARS still have recourse at the end of the tax year upon submission if it is shown that >80% of revenue was generated from a single client. Is their reasoning here to prevent shock tax bills? If so, then I don't see how impeding cash flows can be a viable solution...

No it is not good faith, you have to make a disclosure in front of a commissioner of oath and supply the doc to the company you are invoicing. If you then do get more than 80% of income from a single client then SARS will heavily fine you. I have done this a few years so make sure you have sufficient clients before going this way. My experience was to let the company take the 25% and claim back at year end. At least I got a nice bonus yearly.

 

[nand]

Just get a PTY, it'll make a lot of this frustration go away. You might receive a few other concerns though.

 

[DJ...]

No it is not good faith, you have to make a disclosure in front of a commissioner of oath and supply the doc to the company you are invoicing. If you then do get more than 80% of income from a single client then SARS will heavily fine you. I have done this a few years so make sure you have sufficient clients before going this way. My experience was to let the company take the 25% and claim back at year end. At least I got a nice bonus yearly.

The bonus is all good and well, but it's hampered your cash flow to the tune of at least 25% to 33% over the course of the year. That's the kind of thing that can and does destroy small companies, and even larger ones too. Imagine not being able to repay your creditors because your cash flow has dried up, due to a client withholding 33% of your income. Liquidated, even though your business is financially fine...

 

[Paul Hjul]

the moral of the story is have more than one client ...

the whole thing though is trying to plug loopholes and in the process creating problems

 

[DJ...]

the moral of the story is have more than one client ...

the whole thing though is trying to plug loopholes and in the process creating problems

As an SME that's easier said than done, and even having more than one client doesn't immediately absolve you of this issue. More than just that, insurance brokers are deemed to have one client when using a single LISP (which has considerable benefits to them and their clients) when in fact this shouldn't be the case. You also have an issue for commission-only consultants who work on large projects.

This is like using a blanket to cover an open bottle of wine. It will work, but the cork would have been far more appropriate. SARS just didn't feel like finding the cork...

 

[Paul Hjul]

its a complete muck up - I am not sure that SARS didn't feel like finding the cork, it seems to me to be more of a case of not having the capacity at the State Law Advisers office to manufacture one

but yes SARS on the whole are really working as efficiently as they can but the overall structure is a problem