Personal Service Provider as Defined in the Fourth Schedule

Can somebody please put this in layman's terms. Im guessing it means that if you are employed by or related to the client then you are a personal service provider?

Personal service provider” means any company or trust, where any service rendered on behalf of such company or trust to a client of such company or trust is rendered personally by any person who is a connected person in relation to such company or trust, and—
(a)
such person would be regarded as an employee of such client if such service was rendered by such person directly to such client, other than on behalf of such company or trust; or
(b)
where those duties must be performed mainly at the premises of the client, such person or such company or trust is subject to the control or supervision of such client as to the manner in which the duties are performed or are to be performed in rendering such service; or
(c)
where more than 80 per cent of the income of such company or trust during the year of assessment, from services rendered, consists of or is likely to consist of amounts received directly or indirectly from any one client of such company or trust, or any associated institution as defined in the Seventh Schedule to this Act, in relation to such client,
except where such company or trust throughout the year of assessment employs three or more full-time employees who are on a full-time basis engaged in the business of such company or trust of rendering any such service, other than any employee who is a holder of a share in the company or member of the trust or is a connected person in relation to such person;

Basically it means that if you provide a service to a company in your personal capacity without being an employee, with a max of three employees along with yourself, 80% of your income is from that company, and you perform the service on their premises, then you are a personal service provider.

Ok, so im just going to say Yes im a Small Business Corporation. Shew, filing an ITR14 is not for sissies haha.

Subways81 said:

Ok, so im just going to say Yes im a Small Business Corporation. Shew, filing an ITR14 is not for sissies haha.

Click to expand...

Cool cool, glad to be of help

The answer is not that simple. My suggestion would be to get an accountant. Make sure you qualify as an SBC. There are certain exemptions to qualifying.

I would rather pay someone to submit an ITR14.

Yup, I dont qualify for SBC. Found the site below which lays it out quite nicely. Anywhore, here SARS, take my money.

http://www.patc.co.za/do-you-qualify-as-a-small-business-corporation/

Except:
Personal Service includes any service in the field of accounting, actuarial science, architecture, auctioneering, auditing, broadcasting, consulting, draughtsmanship, education, engineering, financial service broking, health, information technology, journalism, law, management, real estate broking, research, sport, surveying, translation, valuation or veterinary science, which is performed personally by any person who holds an interest in the company or Close Corporation, except where such small business corporation employs three or more unconnected full-time employees for core operations.

If you meet the definition of a PSP then the person who pays you is deemed to be your employer and you an employee and they must withold employees tax from your payments according to the individuals tax tables (i.e. up to 40%). Furthermore you will not be able to claim many deductions against the income per s23(k) as employees can't deduct expenses they incur in their jobs per s23(m) - for example cell phone bills. You can deduct any expenses relating to premises, finance charges, fuel, insurance however (which salaried employees can't).

The whole point of this is to prevent people from operating effectively as an employee within a company structure in order to only pay 28% provisional tax and to claim deductions - i.e. when they should have tax witheld through employees tax @ the sliding scales monthly and no deductions claimable.

You are a PSP if you (the owner or a connected person to you - relative etc.) renders the services to the client, AND effectively are an employee of the client OR the services are done mainly at the client, OR >80% of income is from 1 client only. However, you are NOT a PSP even if you meet the requirements above, if you employ 3 or more full time employees who aren't connected persons to you.

Small business corporations allow you to claim faster deductions and be subject to lower tax rates. But yes if you meet the defintion of a PSP (although there are other disqualifying qualities in the defintion of SBC in s12E in addition to this) you can't be a SBC

As SAdata mentioned, it is to stop the classic situation where for example, a web developer who used to be a salaried employee of company X, decides to resign and work for company X as an independent contractor. He forms a pty and then bills his time to company X. What usually happens is that he ends up only doing work for company X and pretty much spends his ful working day on their clients or at the premises and earns basically the same he used to every month (only without PAYE deducted). The person would then try deduct travelling expenses, entertainment, cellphone, laptop wear and tear etc. Effectively he is exactly the same as the salaried employee he previously was.

That is why SARS stipulates not earning more than 80% from one source therefore making sure you have more than one client (and thus a real independent contractor). There are shady ways of getting past the 80% rules but you need the employer to work with you. Basically the employer will have more than one entity in the group and they pay you a little bit from each. Obviously its all related parties but it gets past often.

what is meant by the terms having more than 3 people full-timed employed.

Does that mean the company MUST employ 3 or more people to avoid being a Personal Service Provider,
and qualify for SBC?

I full fill all other requirements of NOT being a PSP, however as I am the Director of the company
and perform work and maintenance to clients (unconnected) my self, not certain if I qualify as a SBC.