[Question] Full-time contractor & starting a small business

[bridgebin]

Hi - I am currently a full-time contractor, having returned to South Africa after living in the UK for many years. I would like to set-up a small business but am unsure as to which type of setup would be most suitable for tax purposes.

The small business will be making fabric/craft items with labour sourced from independent parties that will be paid per item i.e. not employees.

My contracting earnings put me in the higher tax bracket which prompts the question - if I register the business as a Sole Proprietor (due to simplicity), would any earnings then be added to my contracting earnings and therefore mean that I am taxed 40%? Or would earnings from the SP be taxed as a separate entity?

Any information most appreciated.

[geraldenek]

if you do the small business in your own name the profit you make will be added to your personal income. if you do it in a pty/cc you can qualify as a small business corporation - which lowers the tax but there are certain criteria that should be met.

it is best to sit down with someone who would be able to assist you on the decision of how to do things - always better to work with numbers and knowing all the facts rather than giving advice knowing nothing. i see you are in cape town - if you want i will be able to assist you with this.

[BusFact]

As said above, any earnings as a sole prop will be included in your personal earnings because that is what is meant by a sole prop.

You may also want to consider the other benefits of a company, not just the tax aspect, eg:

- Personal liability protection.
- Ability to grow in the future by allowing additional shareholders.
- Easier to sell as the entity is separate and not entwined in your peronal affairs
- Simplifies things such as VAT and employer duties.