Tax and SARS knowledge base
Can a personal-service-provider company use turnover tax?
Can a personal-service-provider company use turnover tax?
Last reviewed:
Direct answer
A company that is a personal service provider is excluded from turnover tax under SARS's current turnover-tax FAQ. The same FAQ distinguishes a labour broker without a certificate of exemption in the relevant natural-person case. A consulting or service company should therefore test the actual services, clients, ownership, workers and current tax year rather than relying on incorporation.
The question is important because a wrong assumption can affect the tax regime used, return preparation and sometimes payroll treatment. Get the facts in order before making an election or relying on a prior-year result.
What this means in practice
The practical test begins with the commercial arrangement. Who contracts with the client? Who performs the work? Is the income mainly earned through the services of a particular owner or employee? Does the company have employees, equipment, premises and operating independence? The answers should come from signed contracts and real records, not a broad description such as "independent consultant".
Make a client-and-services register for the year. For each customer, record the contract, service description, period, fee, person who performed the work, location, supervision terms and any staffing supplied by the company. Add a separate record of directors, shareholders, employees and their duties.
This file will also help the business identify inconsistencies. For example, invoices may be issued by the company but the contract may name an individual, or payroll records may not support a claim that staff carried out the services. Inconsistency does not automatically decide the tax result, but it should be resolved before filing.
Step-by-step
- Gather the client contracts.
Collect signed contracts, statements of work, purchase orders, invoices and correspondence for every material client. Mark clauses dealing with control, supervision, substitution, location and responsibility for equipment.
- Map the people who performed the work.
List each director, shareholder, employee and contractor. Record what work they performed, when, and under what agreement. Keep employment contracts, payroll reports and time records where available.
- Record ownership and control facts.
Keep the share register, director records, resolutions and any changes during the year. Classification can require facts beyond the service invoice itself.
- Review the current rules.
Use the current SARS turnover-tax information, the current legislation and relevant SARS small-business guidance. Do not rely solely on a label applied by a client, a payroll clerk or an old accountant's working paper.
- Decide the return and registration approach.
If the review indicates a turnover-tax exclusion or uncertainty, seek tailored advice before filing. Map any ordinary company-tax and payroll obligations separately. Do not try to correct a classification problem by changing only the business name on invoices.
- Preserve the conclusion file.
Save the facts, rules reviewed, conclusion, advice and filed returns together. Revisit the file if client arrangements, staffing or ownership change.
Documents and records to keep
Keep all client contracts, scopes of work, invoices, correspondence, timesheets, payroll records, employment agreements and service-provider agreements. Retain shareholder registers, director records, organisational charts, equipment and premises records, and prior returns.
The strongest file explains the business operation in a way that agrees with its contracts, bank receipts, payroll and accounting records. If a fact is uncertain, record the uncertainty rather than inventing a simple answer for the return.
Important limits and exceptions
This guide does not say that all professional or consulting companies are personal service providers, or that all such businesses are excluded from turnover tax. The legal answer depends on detailed and current facts. Client count alone, a company registration certificate or a business card is not conclusive.
Avoid using a prior tax year as a shortcut. A change in a client, ownership, staff member, contract term or actual work arrangement can change the analysis. Tax rules can also change, so confirm the current position before filing.
When to get tailored advice
Get tailored advice where the business earns mainly from personal services, is owner-managed, has only one or a few clients, supplies labour to clients, has related-party arrangements or has already filed under an uncertain classification. Review is particularly important where the result affects PAYE withholding or a material tax election.
TaxProof can help compile the contracts, people map and filing checklist. We cannot determine personal-service-provider status or turnover-tax eligibility without all relevant facts and current legal review.