Personal Service Provider

By Marc Sevitz · Updated 8 September 2013

Hi Tim

1. I am starting a company and it will be a Personal service Provider. I know tax has to be withheld at 28% by my client. What I don't understand is whether the 28% is a flat rate or does the tax payable get recalculated when I submit my ITR12?

e.g.
Say I earn 20000 a month X 28 % tax = 5600 . Tax payed for the year = R 67200.
However if I was taxed as a regular employee my tax would have been = R 37,359.75

Will SARS pay me back the difference?

2. Also as a PSP what forms do I need to submit back to SARS?

Many Thanks

TaxTim Marc said:
10 September 2013 at 14:15

Are you registering a full company or trading in your own name?

PSPstarer said:
10 September 2013 at 16:37

Hi There

Im starting a full PTY company, by definition I am will be classified as a PSP.

TaxTim Marc said:
10 September 2013 at 17:50

The company will be taxed at a flat rate of 28% of it's profit, however if you pay yourself a salary out of the company then you would be taxed in your personal capacity at the relevant tax rates according to SARS tables and this will obviously reduce the company profits and tax. The company and yourself need to be treated and considered as two separate entities and therefore will be taxed separately. On income of R20 000 per month it would be best to trade as a sole proprietor due to the lower tax rates.

PSPstarer said:
10 September 2013 at 19:11

Thanks Tim,

Much appreciated.

My expected income is between 40-60k monthly.
So my client will withhold 28% of 50k. Of the 44k if I would take all as a salary then still have to pay individual tax on that 44k. Would I get money back when I submit my tax return for my company as it seems like I am being double taxed.

Thanks in advance

TaxTim Marc said:
10 September 2013 at 20:04

The company, if not earning any income would indeed get tax back or run an assessed loss each year. You can ask your clients to apply for a directive with SARS allowing 18% to be withheld.

PSPstarer said:
10 September 2013 at 20:31

Thanks a lot for all the help Tim.
Best advice received so far.

TaxTim Marc said:
10 September 2013 at 20:32

Only a pleasure. Just a question, do you only earn income from one source or at least 80% of the income from one source?

PSPstarer said:
11 September 2013 at 14:54

Hi

Yes, only from one source for now.
I am hoping to expand to other clients to get out of the PSP bracket.

TaxTim Marc said:
12 September 2013 at 11:50

Let me know if you have any further questions.

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