Are you self-employed, a contractor, a freelancer, or a budding entrepreneur who is proudly boss-free? No matter how you do it, if you earn an income, you legally need to pay income tax. Not sure how to go about this? Read on…
If you’re self-employed, you might not earn a regular salary or have just one stream of income. This means that, unlike your salaried peers, your tax payments are not straight-forward. This does not mean, however, that you do not have to pay tax. Every working individual who earns above the tax threshold (as specified on the SARS website) has to pay tax. How you do so will depend on your state of employment.
How do salaried employees pay tax? To put you in the picture, all salaried employees have what you might view as a ‘normal’ or standard tax structure – rather than paying a large tax amount at the end of each financial year, tax is deducted from their salaries on a monthly basis by their employers and paid over to SARS. This tax takes the form of either SITE (Standard Income Tax on Employees) or PAYE (Pay As You Earn tax) and is reflected on the employee’s monthly payslip and in their annual IRP5 tax form. At the end of the year, the total amount of tax owed is calculated and, if necessary, the employee will either have to pay in extra money or SARS will reimburse them for money owed.
So, what about the self-employed? If you work for yourself, you can register for provisional tax. This allows you to pay your tax in two amounts over one year. Six months after the beginning of an assessment year (in August), you will make a provisional tax payment based on what you have already earned and an estimate of what you will earn in the next six months (this is known as anticipated income). At the end of that year (the following January), the final amount owed is determined based on how much you have really earnt. Provisional tax estimates and payments are made using IRP6 forms. You will also need to complete a IRT12 form at the end of the year for the year-end tax return. This method of payment helps you to avoid paying a single large amount at the end of the assessment year – an amount that may not be allowed by your cash flow at the time.
Need to register as a provisional taxpayer? You can do so online with eFiling or complete the relevant SARS form and send it through to SARS.
Need to get ready to pay provisional tax? To prepare yourself for paying for provisional tax (and making sure the process is smooth and the payment correct), you should keep a monthly spreadsheet of all your income and work-related expenses. This will help you to keep on top of your finances and tax-ready. You or your bookkeeper can use these figures to calculate your profit and any tax that needs to be paid.
Need help completing your tax forms? If you’re worried that you’ll get your tax return wrong, use the incorrect forms, or miss a big tax deadline, talk to us! As professional accountants and tax consultants, we are well-versed in the latest tax laws and updates. We even have an easy-to-download and even-easier-to-use app that will make sure you never miss a tax deadline again! Whatever your tax needs (from completing an income tax return to liaising with SARS), we can help you keep your books in order and ensure that you (and your business) are compliant with the tax man at all times.
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