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Is an individual who earns all her income from one client deemed to be an employee?

Wednesday, 29 April 2015   (0 Comments)
Posted by: Author: SAIT Technical
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Author: SAIT Technical

Q: I do the payroll administration for a client of mine. They employ many people on an hourly basis. In order for me to code their IRP5 3616 (independent contractor) I ask for an affidavit stating that not more than 80% of their income is earned from this client. One individual cannot give this affidavit as the work for the year has been 100% for the client. This individual lives in Durban and flies to and from Durban to Johannesburg each week. She also rents a flat in Johannesburg in order to have a place to stay. Are her flight and accommodation expenses claimable against her earnings from my client and if so how should these be coded on the IRP5? Also can I code her earnings as 3616?

A: We are not sure why the 80% of the income of the company affidavit or solemn declaration is called for.  From the facts the person concerned is not a personal service provider and paragraph 2(1A) of the Fourth Schedule to the Income Tax Act does not find application here. 

We submit that what is relevant in this instance is the first proviso to exclusion (ii) to the definition of remuneration in paragraph 1 of the Fourth Schedule.

It deems that a person is NOT "deemed to carry on a trade independently as aforesaid if the services are required to be performed mainly at the premises of the person by whom such amount is paid or payable or of the person to whom such services were or are to be rendered and the person who rendered or will render the services is subject to the control or supervision of any other person as to the manner in which his or her duties are performed or to be performed or as to his hours of work”. 

From the facts, she flies to the employer and works there for the working week, we accept your view – i.e. she is deemed to be an employee. 

As such she will only be permitted to make the deductions allowed under section 23(m).  The travel between home and work would be seen as private travel and we submit that no deduction may be permitted. 

The use of code 3616 is available for person carrying on an independent trade. 

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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