An individual has moved to the United Kingdom (UK) but is doing consulting work for two companies in South Africa (SA) and earning income from them. Would he be able to deduct his direct expenses (eg. internet, telephone and stationery) in the UK against the SA income earned?
Important:
This answer is based on tax law year ending 28 February 2021.
Answer:
You need more information from the client before you can provide the guidance required (or take a tax position). In the first place you must clarify what is meant with the “client who has moved to the UK”. Then you must confirm that Article 14, of the RSA / UK treaty doesn’t apply - it will only apply if the person is in employment. In terms of paragraph 1 of Article 3 and for purposes the relevant agreement between the RSA and the UK, “unless the context otherwise requires: (d) the term “business” includes the performance of professional services and of other activities of an independent character.” The right to tax the income is then to be determined under Article 7 (Business Profits). You will then have to determine where the individual has a permanent establishment. The deductions, to the extent there will be RSA sourced income (from the PE here) is in terms of the normal rules. Article 7 deals with specific expenses.