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Does a personal service provider need to register for VAT?

06 May 2015   (0 Comments)
Posted by: Author: SAIT Technical
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Author: SAIT Technical

Q: Does a personal service provider (which is a company) need to register for VAT or is it deemed to be an employee for VAT purposes? The monthly remuneration of the PSP is R500 000 and the personal service company does not charge a service fee.

My opinion is that as most of the income is actually remuneration, the company should be exempt from registering for vat unless the service fees charged exceed the threshold.

A: Before output tax would have to be levied by the personal service provider, it would have to carry on an ‘enterprise’ as defined in sec 1 of the Value-Added Tax Act (No. 89 of 1991) (hereinafter referred to as ‘the VAT Act’). However, Proviso (iii) to the said definition states the following:

‘(aa) the rendering of services by an employee to his employer in the course of his employment or the rendering of services by the holder of any office in performing the duties of his office, shall not be deemed to be the carrying on of an enterprise to the extent that any amount constituting remuneration as contemplated in the definition of "remuneration” in paragraph 1 of the Fourth Schedule to the Income Tax Act is paid or is payable to such employee or office holder, as the case may be;

 (bb) subparagraph (aa) of this paragraph shall not apply in relation to any employment or office accepted by any person in carrying on any enterprise carried on by him independently of the employer or concern by whom the amount of remuneration is paid or payable ...’ (own emphasis added).

Proviso (iii) therefore has the effect that services rendered by an ‘employee’ to an ‘employer’ shall be excluded from the definition of an enterprise to the extent that ‘remuneration’ is paid to the employee.

The term ‘employee’ and ‘employer’ is not defined in the VAT Act and one therefore needs to ascribe the common-law meaning thereto and need to refrain from using the respective definitions thereof in the Fourth Schedule to the Income Tax Act (No. 58 of 1962) (hereinafter referred to as ‘the Act’). The remuneration paid to the personal service provider will fall within the ambit of the definition of ‘remuneration’ in par 1 of the Fourth Schedule to the Act. It however does not mean that one is dealing with an ‘employee’ and an ‘employer’ as envisaged in proviso (iii)(aa) to the VAT Act.

The determination of whether one is dealing with an employee and an employer from a common-law perspective is fact specific and the different contracts entered into by the company would have to be investigated.  The effect of proviso (iii)(bb) (of the definition of enterprise in section 1(1) of the VAT Act) is that a person who is merely as a result of these two statutory indicators  deemed not to be an independent contractor (the Income Tax Act definition of remuneration), but who is - in accordance with the common-law dominant impression test - in fact an independent contractor, is regarded as carrying on an enterprise for VAT purposes.


From the facts provided, it would seem as if the personal service provider would classify as an ‘employee’ and even though PAYE is deducted from the amounts paid to it, it would may still be liable for registration as a vendor and to levy output tax on the remuneration received by it. The amounts received by the company in respect of services rendered would constitute consideration and the company would have to levy output tax if the company is registered (or must be) as a vendor.

The payments made by the client(s) to the personal service provider may be subject to both VAT and PAYE, provided that all the other requirements of the VAT Act are met. Therefore, the amounts received by the company from its clients are both consideration for the supply of services and remuneration, subject to employees’ tax, as envisaged in the Fourth Schedule. 

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. 


Section 240A of the Tax Administration Act, 2011 (as amended) requires that all tax practitioners register with a recognized controlling body before 1 July 2013. It is a criminal offense to not register with both a recognized controlling body and SARS.


The Act requires that a minimum academic and practical requirments be set to register with a controlling body. Click here for the minimum requirements of SAIT.

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