Is an independent medical practitioner liable for PAYE if vat has been paid for services rendered?
Important:
This answer is based on tax law year ending 28 February 2016.
Answer:
It is possible that an amount can be subject to employees’ tax, because it is remuneration and not excluded under the proviso to exclusion (ii) to the definition of remuneration in paragraph 1 of the Fourth Schedule to the Income Tax Act, and also subject to Value-Added Tax because the individual carries on an enterprise independently and exceeds the registration threshold.
In other words, registering as a vendor will not result in the individual no longer receiving ‘remuneration’.
From a tax point of view an employer / employee relationship will exist the moment remuneration is paid. Generally speaking, a person making payment (as commission or as a percentage of turnover attributed to the person) 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) by him or her. But note that, 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.