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Is PAYE of 35 per cent deductible from the payment to a sub-contractor?

09 April 2015   (0 Comments)
Posted by: Author: SAIT Technical
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Author: SAIT Technical

Q: One of my clients, who is a member of a CC, is working at a TV station doing subcontracting in sound. The accounts department there has told him that if he invoices the station in the CC’s name they will deduct 35% tax. Apparently if he invoices in his personal name then he will need to obtain a tax directive. Is this correct?  

A: We assume that the close corporation is contracted to do the work, i.e. the client is not doing the work in his own name.  The obligation to deduct employees’ tax would then only arise for the TV station if the CC is a personal service provider as defined in paragraph 1 of the Fourth Schedule to the Income Tax Act.  Based on the facts provided we are not sure why they consider the CC to be one.  

We are not sure where the 35% comes from – it may well be based on an old SARS guide.  As a personal service provider that is a company (the close corporation would be one) is only taxed at 28% the tax to be deducted cannot exceed that.  The rate of 28% can be reduced if a tax directive is obtained.  

We assume that the new agreement will be entered into in terms of which the services are no longer rendered by the CC (i.e. the proviso to paragraph (c) of the definition of gross income in section 1(1) of the Income Tax Act doesn’t apply), but by the member.  The issue of employees’ tax would then only arise if the individual is an employee – i.e. not carrying on a trade independently or deemed not to be carrying on one.  A directive would then be necessary if the employee can make deductions that are not prohibited by section 23(m).  

Disclaimer: Nothing in this query and answer should be construed as constituting tax advice or a tax opinion. An expert should be consulted for advice based on the facts and circumstances of each transaction/case. Even though great care has been taken to ensure the accuracy of the answer, SAIT do not accept any responsibility for consequences of decisions taken based on this query and answer. It remains your own responsibility to consult the relevant primary resources when taking a decision.



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