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Avoid a 10% penalty by knowing how to tax an independent contractor correctly

by , 15 November 2016
Avoid a 10% penalty by knowing how to tax an independent contractor correctlyEmployers often think they're dealing with an independent contractor as opposed to an employee, so they don't deduct any tax from his pay. You only deduct employees' taxes from the remuneration you pay to employees. But, if your 'independent contractor' is actually an employee, SARS will slap you with a 10% penalty for under deducting PAYE! Let's look at 4 easy ways to tell if a contractor truly is a contractor.

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139 reasons why SARS doesn't want you to see this...
 
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4 Signs he's an independent contractor

Use this 4-point checklist to see if your worker's an independent contractor (all 4 are requirements). SARS will also use this checklist when it's auditing your payroll to identify if he's an independent contractor or employee.

1.    Do you pay him the same amount regularly? If you pay him the same amount regularly, SARS will consider him an employee.

2.    His business will survive, even if he loses you as a customer. If you become his one and only client and his business can't survive without you, SARS will consider him an employee.

3.    He does the work at his own premises, workshop or office. And he only visits you every now and again to carry out the work for you. For example, a plumber has his own head office. But he doesn't take your toilet or sink to the head office to do his repairs. He'll do the work at your premises.

4.    You don't control how he does his work, what his working hours are, when he takes leave, etc.

 

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Save R24 469 by keeping an accurate logbook

Maintaining an accurate logbook is a tedious affair but the benefit of additional tax savings may make it worthwhile.

Let's see how you can save R24 469

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How to tax an independent contractor

If you find the contractor is actually an employee, you must declare his remuneration under the correct source codes for employees.

If the contractor is in fact a contractor, you'll deduct the tax and issue an IRP5 against source code 3616. If the independent contractor gives you an invoice, you don't need to issue an IRP5.

PS Find out how to make yourself invisible to SARS



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