There is an interesting quirk operating between the VAT and the employees' tax legislation contained in the respective Acts, which means that you may be liable to register for VAT, whilst the person with whom you are contracting must also deduct employees' tax from payments being made to you.
How so? Surely that is not fair, you may say. A well quoted maxim in the tax world is that "there is no equity in tax". So regardless of whether we may think this situation should or should not exist, it does. And you need to be aware of it to ensure that you comply with the law as it stands.
The situation to which this phenomenon relates arises if you are conducting an enterprise (as defined for VAT purposes), are independent in the normally understood sense of the word, but not "independent" for the purposes of the employees' tax legislation. This might occur if you are a contracted agent, like an independent insurance agent contracted to a specific insurance company or a broker acting for a specific company.
An enterprise, for VAT purposes, is any enterprise or activity carried on continuously or regularly, in South Africa, in the course of which goods or services are supplied to another person for a consideration. It specifically includes any commercial, financial, industrial, mining, farming, fishing or professional concern. In other words it is extremely broad.
It specifically excludes the rendering of services by an employer to an employee in the course of employment to the extent that remuneration (per the Income Tax legislation) is paid to the employee. Thus, generally, employees would not be required to register for VAT purposes.
But this exclusion does not apply where a person is employed and carries on any enterprise independently of the employer or concern who pays him or her.
Consequently, if you carry on an independent enterprise and your turnover exceeds R150 000 per annum you need to register for VAT (this assumes that you do not make exempt supplies).
The problem comes in with the meaning of the word "independent". For VAT purposes, one must take the general meaning of the word. For employees' tax purposes there are specific criteria for when you can't be classified as independent. These are:
* If you are under the supervision and control of the other person (with whom you are contracted) as to the manner in which you perform your duties, or hours of work; or
* If amounts paid for your services consist of, or include earnings of any description which are payable at regular daily, weekly, monthly or other intervals.
The second of these criteria is often a problem in that contracts often specify contractually obliged regular payments.
Thus, notwithstanding being independent, and registered for VAT purposes, it may be necessary for your "employer" to deduct employees' tax from payments made to you. Alternatively, employees' tax may be deducted from amounts being paid to you, but you should also be registered for VAT purposes.
If this is the case, be careful to ensure you identify the VAT separately as your employer may be able to claim a refund of the amount from the South African Revenue Services (SARS) and you don't want employees' tax deducted from the VAT paid to you.
In addition, because of the cash flow implications the two taxes may have on your business, you would be wise to approach SARS for a directive for the employees' tax to be deducted at a lesser percentage than the tables require.