Q: Please confirm my understanding of the tax and VAT treatment in respect of
a lump sum payout to a personal service provider (PSP) (which is a company).
The PSP receives a share of farming profits in exchange for farm management
It receives income from other sources, but will receive a large lump sum
profit share for the 2015 tax year, pushing the ratio over 80 %. The PSP is not
My understanding is that 28 % PAYE should be withheld by the farming company
and declared on the IRP5 issued to the PSP. The PSP will need to register for
VAT and charge VAT on the transaction (turnover in excess of R1m). PSP will
declare the income, less any expenses allowable. Tax will be calculated at 28 %
on the Taxable Income. The PSP will then claim the 28 % employees’ tax against
the normal tax liability for the year of assessment
A: Assuming the PSP
company meets all the other requirements as well and no exclusion applies, then
we agree that 28% PAYE withholding will apply on the excluding VAT amount. The
PSP would have to register for VAT from the end of the month that the
registration threshold in section 23 of the VAT Act is met and the supplies
after registration will be taxable supplies subject to VAT.
You are correct that on assessment the PAYE withheld will be claimed as a
tax payment credit and in calculation of the taxable income the prohibition in
section 23(k) Income Tax Act should be applied to the expenses of the PSP.
Disclaimer: Nothing in this query and answer should be construed as
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advice based on the facts and circumstances of each transaction/case. Even
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not accept any responsibility for consequences of decisions taken based on this
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