| SARS has to collect taxes to keep the country's gears
oiled, and although there's a thin line between overpayment-prevention
and tax evasion, it's every person's right to structure
his earnings in such a manner as to achieve the optimum
tax result, which is the euphemism for a tax-saving.
Both parties, (client and contractor) have tried in
the past, and with some success, to show that the contractor
is not an employee, allowing him to claim tax deductions
against the costs, including the conducting of his
business activity. Once deemed to be an employee then
his deductions fall away. It is these claims that have
been the source of SARS's irritation with regard to
the use of contractors. The result is the imposition
of measures in the recent amendments which now try
and drag the contractor into the PAYE nett.
There is no doubt that there was abuse of the situation
by contractors in the past. In addition to the use
of close corporations and similar vehicles to maximise
the reduction of tax liability for what was in effect
income. In terms of the Labour Act there were only
two types of workers, one being an independent contractor
and the other, an employee. SARS has for years battled
to make a differentiation between these two categories.
As a result, SARS now holds the employer responsible
for the PAYE that is due. Should the employer not conform
to the changes of the Act, when considering the contractor's
tax affairs, it may result in a short payment of income
tax, for which the employer will be held accountable,
with the relevant penalties having to be paid.
Initially the term labour worker, was first seen in
1993 to accommodate the use of close corporations,
as private employment companies in order to avoid paying
PAYE. An individual would establish a close corporation
and invoice the client directly. The definition of
labour broker is now part of the fourth schedule and
refers specifically to the provision of workers and
specifically not service, to a client in return for
a fee. Subject to certain conditions the labour brokers
obtains a tax exemption certificate (IRP30) against
presentation of which no PAYE is deducted, prior to
money being paid to the labour broker.
Therefore the use of such accredited labour brokers
presents the safest method of dealing with contractors
of all types, as the contractors they place, are deemed
for tax purposes to be their employees and thus they
must address the PAYE problems, not the client. This
relieves the client of any obligations and responsibilities
especially that of dealing with SARS and the PAYE requirement.
It is important to have a contract between the client
and the labour broker as there is joint and several
liability attached to any labour dispute between the
labour broker, client and employees.
The only legal requirement that the client is required
to receive from the labour broker is the IRP30 tax
exemption certificate. It would however be recommended
that one obtains copies of both the PAYE certificate
and VAT certificate in order to be satisfied that the
labour broker is duly registered for both items. Should
you not receive an IRP30 tax exemption certificate,
you are required to deduct PAYE from payments made
to the contractor. An important consideration to note
is that the certificate is renewable every year and
must be presented to you each and every new tax year.
If no IRP30 is available, all payments must be made
subject to the tax as follows:
- For individuals, employees tax must be deducted
according to the IRP10 table.
- Where a tax directive has been issued the deduction
of PAYE must be according to the instructions on
the directive.
- If the labour broker is a company or a close
corporation, tax must be deducted at the applicable
company tax rate.
- All tax deducted must be shown as PAYE on an
IPR5 certificate.
Having now dealt with labour brokers, we can now turn
to areas where an employer already faces an inquisition
in respect of SARS relating to the use by the client
of individuals or companies that invoice directly for
the work carried out.
Two basic questions are asked: Is the client dealing
with an individual, or is the client dealing with a
company, trust or close corporation:
At SACC we endeavour to optimize your tax result by
staying within the boundaries of the law.
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