Company make use of the services of a natural person (RSA resident). He invoices the company a fee for work performed (consulting fee and this differs). He is not under the supervision and control of the company, but more than 80% of his income is from th
Important:
This answer is based on tax law year ending 28 February 2016.
Answer:
The 80% of income rule doesn’t apply to an individual. It applies where the services are rendered by a company – personal service provider.
Generally speaking, a person making payment to an individual (in respect of services rendered) would have an obligation to deduct employees’ tax from that payment 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). But note, in this regard, a person will be deemed NOT to carry on a trade independently if the services are required to be performed mainly at the premises of the person by whom payment is made or the person to whom the services are rendered AND the person rendering the services is subject to the control or supervision of any other person as to the manner in which his duties are performed or as to his hours of work.
It is the employer's duty to determine whether a person is an independent contractor or an employee and whether employee's tax should therefore be deducted or not. The employer is in the best position to interpret the facts of each case.
The current practice generally prevailing in this regard is set out in Interpretation Note 17 (issue 3). The note deals with the statutory tests (including how to apply the statutory tests) and common law dominant impression test. The table on page 17 is very useful.
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.