In this blog post Matimba outlines the tax treatment of Independent Contractors in South Africa, a complex area, that is subject to updated interpretation of the law from time to time.
Many people work under contract in South Africa. Broadly, contractors fall into three categories:
Further an independent contractor may be classified differently under tax and labour law e.g. a contracted employee who pays PAYE tax may still be treated as an independent contractor under labour law.
Let’s look at the three main types of contractor.
1. Independent Contractor off Payroll
These contractors invoice a client for goods or services provided.
In this relationship, while there may be a contract between an individual and a client, there is no evident employer/employee relationship and the contractor’s income does not meet the definition of remuneration under the Fourth Schedule of the Income Tax Act. The contractor is effectively a supplier.
These independent contractors are not seen as employees or contracted employees, are not subject to employees tax i.e. PAYE or Unemployment Insurance Fund (UIF) and are not added to the payroll system. The Skills Development Levy (SDL) is not paid on their behalf.
As independent contractors they need to register as provisional tax payers, are responsible for their own tax affairs and declare their income and expenses under the local business section of the ITR12.
2. Independent Contractor on Payroll
An Independent Contractor on Payroll is one who works independently as an expert in his field, controls his own hours of work and does not work directly under the control of a manager.
Such contractors work in a senior or management role but do not directly invoice a client for goods/services rendered. However, they earn remuneration and must be added to a company’s Payroll system. SARS code 3616 applies.
3. Contracted Employee
A contract may exist between a client and a contractor where that contractor is under the control of a manager. In this instance the contractor is treated like a regular employee on the Payroll system. SARS code 3601 applies.
 EMPLOYEES’ TAX: INDEPENDENT CONTRACTORS
INTERPRETATION NOTE: NO. 13
 Section 23(m) - DEDUCTIONS : LIMITATIONS
 Skills Development Levy