Are you a Personal Service Provider? Here's what you need to know.
What is a Personal Service Provider? PSP Meaning?
A personal service provider is any company or trust, where the services provided are provided on behalf of the company or trust by a related party.
Whether you are considered a Personal Service Provider by SARS can influence when and how your taxes are collected together with unique administrative processes attached to the given scenario.
The personal service provider classification ultimately impacts who pays over the income taxes to SARS.
When tax is paid over to SARS by a source, it is important to remember the personal service provider must still submit their own tax returns that reconcile with these amounts received.
The burden of claiming on tax deductibles can become that much harder should there be no documentary proof of a trading activity for that tax year thus it is important to keep record of not only your income but also all your expenses.
Frequently asked questions
What will result in you being classified as a personal service provider?
A “personal service provider” is defined in the Fourth Schedule as such if the services were rendered personally by a connected person in relation to the company to a client and –
- the connected person would be regarded as an employee of the client, if the person had rendered the service directly to the client; or
- the services must be performed mainly at the client’s premises, and such employee is perhaps working under the supervision of the client; or
- more than 80% of the income of the company, during the year of assessment has been derived (or is likely to be derived) from any one client.
Personal service provider as defined in the fourth schedule of the income tax act
A personal service provider is defined in the fourth schedule as a services rendered by someone personally and who is a related party or connected person with regards to the company.
What is the tax rate for a personal service provider
Tax at a rate of 28% must be withheld from the personal service provider and paid over to SARS. This will result in the issuance of an IRP5 in favour of the entity being recognized as an "employee". PSP's handled much in the same way as employees.
What is an independent contractor and how does it compare to a personal service provider
An Independent contractor is an individual providing services to various different clients whereas a personal service provider is a company or trust represented by a related/connected party.
How are Independent contractors taxed
1) Employment taxes i.e. PAYE is withheld and paid to SARS (advisable to deduct at least 25% to reduce the risk that the contractor has to pay in when tax season opens.
2) No PAYE is withheld, and the contractor assumes responsibility for the tax liability via the income and provisional tax systems.
Can personal service providers qualify to be a Small Business
If the personal service provider satisfies the following criteria, then they would qualify to register as a Small Business Corporation:
- has 3 or more full time employees
- who are unrelated to the ownership structure of the entity
- and who do not own any shares in the company
What is personal services examples
- Professional Organizing Service
- Personal Shopper
- Housesitting
- Wedding Planner
- Mobile beautician
- Event Planning
- Hair Stylist
What is the consulting fees tax treatment
How much tax a consultant pays on consulting fees will be influenced by the amount of income and the number of sources of income and whether they have any deductibles that can be claimed. Consultants in their individual capacity would pay tax based on the individual tax scales. Consulting companies would pay based on their corporate tax rate.
How do I submit my income tax return if I am a personal service provider
If you have been classified as a personal service provider, then the source would have to deduct your estimated tax on your taxable income ie PAYE and pay this over to SARS.
Is Provisional Tax applicable to a Personal Service Provider
Yes. A personal service provider is a Company or Trust and as such would be a provisional taxpayer.
What are personal service business ideas
Examples of personal service company ideas include:
- Business consulting
- Dentist
- Tax adviser
- Maintenance services
- Graphic design
- Online teaching
- Pet sitting
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