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Thread: Sole Proprietor Advice Required?

  1. #1
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    Question Sole Proprietor Advice Required?

    Dear Fellow Forum Members,

    I am doing graphic design work at home for a company. I work approximately 20 hours a week and I am expected to invoice the company every month for the hours worked.

    I am a registered tax payer and approached SARS to advise them that I have begun trading as a sole proprietor. I was advised by SARS to send a written declaration to the appropriate department at the provincial offices in Cape Town.

    My questions are as follows:

    1. As a Sole Proprietor, will my tax number that was assigned to me whilst previously in full-time employment remain the same?

    2. As a Sole Proprietor, am I required to provide my tax number on invoices issued to my clients?

    3a. My expected earnings as a Sole Proprietor for the next 6 months is R24000.00, and for the next 12 months is R48000.00. That's an average of R4000.00 per month. How much provisional tax am I expected to pay (not taking tax deductable expenses into consideration) based on the aforementioned expected earnings?

    3b. It is my understanding that if my expected earnings over the next 12 months is less than the current tax threshold of R57000.00 for individuals below the age of 65, then as a Sole Proprietor I will not have to pay provisional tax, although I will still have to submit my provisional tax forms twice a year. Is my understanding correct?

    I would be most appreciative if I were to receive answers to my aforementioned questions.

    Thanking you in advance.
    Best Regards.

  2. #2
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    I am not sure why SARS require you to send some sort of declaration. The only one I am aware of is that the income must be declared on your tax return at the end of the year.

    1. A sole proprietor simply means you are trading as yourself. You keep the same tax number. You are not creating a new entity such as a company.
    2. I don't see why it would be necessary to put you tax number on the invoices. This is only normally a requirement for VAT numbers.
    3a. You would pay no provisional tax on those earnings, as long as you don't have other forms of income to add to it.
    3b. I agree with your understanding.

    My 2c worth.

  3. Thanks given for this post:

    mleroux (25-Jan-11)

  4. #3
    Site Caretaker Dave A's Avatar
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    I second BusFact's analysis.

    My only concern is if the company hiring you misunderstands their obligations to SARS in this. If the company deducts any tax from payments made over to you, be sure to make a post for some advice on how to proceed.

  5. Thanks given for this post:

    mleroux (25-Jan-11)

  6. #4
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    Morning mleroux
    Regarding your questions:

    1. As an individual, your tax number is the same as your I.D. - only one. Thus if you are registered for tax, regardless of earning remuneration or income from trading, you will use the same tax number.

    2. According Sec. 20(4) of the VAT-Act you are required to provide your VAT reference number on all invoices issued to clients, but no need for your income tax number.

    3a.Your accountant should assist you in the correct calculation as to how much you should pay. I believe it will be zero (R48 000x18%=R8640 which is less than your primary rebate {R10 260}, but consult him for assistance. An estimated income for the second period must be equal to the lesser of the basic amount or 90% of the actual taxable income for the year, otherwise additional tax of 20% will be imposed on under-estimated taxable income. Remember that you are taxed on your worldwide income, thus you need to take all income in to account when calculating your taxable income.

    3b.Any person who derives income, other than remuneration or an allowance or advance as contemplated in section 8(1), qualifies as a provisional taxpayer; then any person who does not carry on a business and whose income does not exceed the tax threshold, is exempt from the payment of provisional tax but as a provisional taxpayer even if your return is nil, you still need to submit. (01.07.2010 - SARS document). Then a notice was send out that effective from 28.06.2010,only taxpayers liable for provisional tax will be required to submit their IRP 6 returns and if at the time of assessment it is determined that the taxpayer was liable for provisional tax, penalties and interest may be levied.

    I will rather submit, but still do an estimate calculation do stay as close to the 90 %( 3a).

    If though as Dave A mentioned, you practice as an independent contractor - that will be a new ball game...

  7. Thank given for this post:

    Dave A (25-Jan-11), mleroux (25-Jan-11)

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