Should I pay tax?
Hi! I'm a freelance web and mobile developer. I "partner" with someone in UK and get paid via PayPal, then I also have a few clients in SA. The work and money is growing and I want to know if I should register a company to pay taxes or not?
I will be getting between 200k and 400k per annum depending on the projects. Someone told me that I don't need to pay taxes if it's less than 600k PA. Is this true?
Also, if I don't need to pay these taxes, how would I get a payslip or any kind of proof that I have an income to credit providers to buy a house or car or open accounts? Can I open a business account without a vat number and let my clients pay to that account then I transfer eg. R10k into my personal account each month?
Please help! I'm clueless.. :P thanks!
The main advantage of creating a company is so that more than one person can share in the ownership of a business. There are other reasons, but that's essentially the main one. If you set up a company it comes with additional set up and annual costs as well as admin work. Personally I don't see the point in you creating a company now ... maybe later.
You have to pay tax regardless of whether the company is earning the money or whether you are (sole proprietor). As it stands you will declare your income in your annual tax return, and possibly be allowed to deduct certain expenses. If you create a company, then it will pay the income tax and it will also pay across any PAYE tax it due from your salary. You will then have to manage these PAYE and UIF returns each month and do an annual recon.
I seriously doubt the validity of the comment behind anything under R600k pa. From around R73k pa is when you will start having to pay income tax.
If you need the payslips, then yes you will have to create a company which will employ you. Then you have to run the company and create the payslips, with all the associated admin. I have my doubts if its worth it. Apparently banks do prefer to see payslips and it will make loan applications easier. However, if they notice that you are the only shareholder, director and employee, its going to create similar warning signs to them as if you were a sole proprietor. It boils down to a decision on whether all the extra admin and costs is worth the ease of getting credit. You should still be able to get credit based on proof of your income over a period of time, even if it does not involve payslips.
You don't need a payslip to open an account. You do not need a VAT number to open a business account. Only businesses with over R1mil turnover a year must register for VAT.
Hope that helps a bit.
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Couldn't ask for a better answer, thanks!
I never paid taxes myself, employer always did this on my behalf.
How do I calculate and pay it? And do I pay my percentage of all the money coming into the business account, or just the "salary" I pay myself?
Is there a deadline for this each month?
Thanks for the advice
When it comes to tax my knowledge gets a bit shaky, but let me try:
If you are not creating a company then you cannot pay yourself a salary. A sole proprietor has income, but its not called a salary. Generally all the money coming into your account is the income you will have to pay tax on. There may be some expenses which you can use to reduce this amount, as long as they are used to generate your income.
You will need to search the SARS website for the Feb 2016 personal tax rates (if the attachment works it will be at the bottom of this post). It depends how much you earn as to how much tax you pay and at what rate. After February each year you will need to submit a tax return to SARS on efiling where you tell them how much you earned. From these figures they will let you know how much you owe them in a statement of account. Pay this amount as per the instructions on the statement. Your challenge here is to not spend this money that you owe SARS, rather stick it away each month in a separate bank account until payment time arrives. Usually an employer does this for you, but as a sole proprietor you have to be disciplined and do it yourself.
Looking forward to hear from other sole props out there and how they handle this.
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