Sars Interpretation Note Independent Contractor

SARS Interpretation Note: Understanding Independent Contractors for Tax Purposes

In recent years, there has been a significant rise in the number of independent contractors working in various industries. These contractors often provide specialized services to clients without being employed on a full-time basis. As the number of independent contractors has increased, so has the need to understand the tax implications of hiring and working as an independent contractor. In South Africa, the South African Revenue Service (SARS) has published an Interpretation Note to provide clarity on the tax treatment of independent contractors.

What is an Independent Contractor?

According to SARS, an independent contractor is a person who works independently and is not subject to the control of an employer. Independent contractors operate their own businesses and provide goods or services to their clients. They are not employees and do not receive a regular salary or benefits. Instead, they are paid for their services on a per-project or per-hour basis.

Tax Implications of Working as an Independent Contractor

As an independent contractor, you are responsible for paying your taxes. SARS requires all individuals who earn an income to register for tax. Independent contractors are not exempt from this requirement. You will need to register as a provisional taxpayer and submit a tax return twice a year. It is important to note that failure to comply with these requirements may result in penalties or legal action.

Tax Implications of Hiring Independent Contractors

If you are an employer who hires independent contractors, you must be aware of the tax implications. According to SARS, the employer must deduct Pay-As-You-Earn (PAYE) from the independent contractor’s payment if the independent contractor is deemed to be an employee. If the independent contractor is not an employee, no PAYE should be deducted. To determine whether an independent contractor is an employee or not, the employer must consider factors such as the level of control over the work performed, whether there are set work hours and whether the independent contractor provides their own equipment.

Conclusion

Working as an independent contractor or hiring independent contractors can be a beneficial arrangement for both parties. However, it is important to understand the tax implications to avoid unnecessary legal and financial complications. The SARS Interpretation Note provides valuable guidance on the tax treatment of independent contractors. It is recommended that both independent contractors and employers consult with a tax professional to ensure compliance with all tax regulations.