I have a client who is a sole proprietor who runs a small business with three employees. To avoid cash flow implications caused by bi-annual provisional tax payments he also pays himself a monthly salary and pays PAYE on this salary. Included in this sala
Important:
This answer is based on tax law for the tax year ending 28 February 2020.
Answer:
A sole proprietor is not an employee of himself. The person will include in his taxable income the total “net profit” (i.e. taxable income) of the business for the year. The drawings in anticipation of the profits are not remuneration. As such the sole trader does not receive remuneration (as defined in the Fourth Schedule to the Income Tax Act) and does not have to pay the Skills development levy.
Remuneration is defined for purposes of the Unemployment Insurance Contributions Act as “remuneration as defined in paragraph 1 of the Fourth Schedule to the Income Tax Act”. He therefore does not have to make a contribution to the Unemployment Insurance Fund.
We understand that the facts are that the person paid employees’ tax to reduce his provisional tax payments. Whilst this was not correct we accept that the person now has to issue an IRP5 to be able to complete the employer reconciliation. The correct answer would be to show the remuneration as nil, but to reflect the employees’ tax withheld on the IRP5. We understand that the SARS software doesn’t allow a zero to be entered and then suggest that you use R1.