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When must PAYE must be deducted from the fee paid to a sole trader for services rendered?

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

Q: My one client, is sole proprietor she has a quite a big client base where he invoices them for drafting speeches and writing media reports, etc.

His one client insists on deducting PAYE from her invoice every month, saying that he is an independent contractor to them therefore they are obliged to deduct PAYE.

I disagree and have told them that he is not a personal service provider and 80% of his income is not derived from them which is the case.

They are insisting since he is a sole proprietor and not a company/cc that they must continue to do this.

Please can you clear this up by what the tax law says about this?

A: The obligation on an employer to withhold PAYE is from remuneration paid to an employee. An employee by definition in the Fourth Schedule includes a personal service provider. Remuneration is defined to include all forms of salary and service payments (para (c) gross income) to persons who do not carry on an independent trade and for the latter the person will be deemed not to carry on an independent trade if he is subject to supervision and control and renders the service mainly on the employer’s premises. He will be deemed to be independent if he employs 3 or more persons in such business rendering such service.

The test is applied as follows:

If the person is a trust, company or CC then it must be determined if the entity is a personal service provider as defined in para 1 Fourth Schedule. If it is PAYE must be withheld.

If the person is a sole proprietor, the remuneration test applies. Then it must be determined if the person is in labour law employment. If not it must be determined if the independent person is deemed dependent by rendering services mainly on premises and under supervision and control of the employer. 

If this test applies then PAYE must be withheld, if not no PAYE must be withheld.

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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