A client is a sole director and shareholder in a company. He is invoicing out of the company and the customer is deducting paye from the payment due to the company. The company will need to pay the director a salary. Is there a way that the company and or
Important:
This answer is based on tax law for the tax year ending 28 February 2020.
Answer:
From the information provided it is clear that the company is a personal service provider – see paragraph 1 of the Fourth Schedule to the Income Tax Act.
The company, as an employer, or the person making payment to an individual (in respect of services rendered) would have an obligation to deduct employees’ tax from that payment, unless there is directive. The matter is being dealt with in paragraph 11 of the Fourth Schedule to the Income Tax Act.
Paragraph 11(a) allows SARS, having regard to the circumstances of the case, to issue a directive to an employer authorising that employer –
(i) to refrain from deducting or withholding any amount … by way of employees' tax from any remuneration due to any employee of that employer; or
(ii) to deduct or withhold by way of employees' tax from any remuneration …, a specified amount or an amount to be determined in accordance with a specified rate or scale,
… where the remuneration is paid or payable to a personal service provider ...
Note, in this instance the employer would be the client of the personal service provider.
The basis of the request would be the amount that qualifies to be deducted in respect of the remuneration paid to the director – section 11(a), but read with section 23(k) of the Income Tax Act.