If you own an estate agency and you have got any agents with no tax directives, is is acceptable if you tax them at 25% as an independent contractor until such a time that they obtain a tax directive? Also such an individual elect to then pay an additiona
Important:
This answer is based on tax law year ending 28 February 2018.
Answer:
Your statement that they “can be seen as … independent” requires comment. We will first deal with the requests:
1. Withholding at 25%:
The SARS guide, for 2019, deals with the 25% issue as follows:
“Under no circumstances may 25% or any other percentage for that matter, be deducted from remuneration, unless the tax directive so directs.”
2. Withholding a greater amount of employees’ tax
Paragraph 2(2) of the Fourth Schedule deals with the withholding of a greater amount in respect of employees’ tax. It reads as follows:
“Any employer may, at the written request of any employee, deduct or withhold from any amount of remuneration an amount by way of employees' tax greater than that required to be deducted or withheld in terms of sub-paragraph (1), and shall remit such amount to the Commissioner, and the provisions of this Schedule relating to employees' tax shall mutatis mutandis apply in respect of such amount.”
Independent:
The issue, as far as the services rendered by the individual is concerned, is whether they are rendered by the individual in a capacity as a person carrying on a trade independently. Generally speaking, a person deriving an amount (in respect of services rendered) by way of a fee would be in receipt of remuneration UNLESS the individual rendered the services in the course of a trade carried on independently (as required by proviso (ii) to the definition of remuneration in paragraph 1 of the Fourth Schedule to the Income Tax Act) by him or her).
As explained in the current practice generally prevailing (issue 4), it “is the responsibility of the employer to determine whether the provisions of exclusionary subparagraph (ii) of the definition of “remuneration” are applicable and whether payments are subject to employees’ tax.” It is SARS’s view that the employer “is in the best position to evaluate the facts and the actual situation”. The ‘employer’ in this instance would be the estate agency.
The legal relationship between the parties must therefore be gathered from the terms of the (written) agreement between them. The general principle was explained as follows by Judge Streicher in the Niselow case. The Judge said that "… an employee is a person who makes over his or her capacity to produce to another; an independent contractor, by contrast, is a person whose commitment is to the production of a given result by his or her labour…" The judge then concluded by saying that the relationship between the parties must remain one in terms of which the person doing the work undertook to produce a certain result and not to render personal services to person paying for it to be a contract in terms of which independent services are rendered.
If the individuals are carrying on an independent trade, in terms of the proviso to the definition of remuneration that we referred to above, then no employees tax can be withheld, at 25% or any other percentage.