Navigating tax can be tricky, and this is especially true for freelancers. Whether you’re a graphic designer, writer, or any independent contractor, you need to understand your tax obligations – this is crucial for financial success and legal compliance.

In this episode of the My Money, My Lifestyle podcast, tax experts from BDO South Africa, Kagiso Nonyane and Dumisa Sihawu. shed light on the essentials of tax for freelancers, including the perplexities of tax numbers, directives, and the dreaded VAT registration.

Dumisa begins by explaining the importance of distinguishing between an employee and a freelancer from a tax perspective. It is the client’s responsibility to determine whether the freelancer should be treated as an employee for tax withholding purposes. This assessment can significantly affect how much tax is deducted from your income.

Kagiso then delves into the intricacies of VAT. She clarifies when and why a freelancer should register for VAT, and the potential impact this can have on your business operations. The discussion is peppered with practical advice, such as the significance of keeping accurate records and understanding which expenses are deductible.

Dumisa explains who qualifies as a provisional taxpayer and the importance of submitting accurate tax returns every six months. This is a vital segment for freelancers who want to avoid the shock of unexpected tax bills.

The conversation also addresses how you can use a tax directive to ensure that the tax deducted from your income aligns with your actual tax rate. This can be a lifesaver for freelancers who find themselves taxed at a standard rate that is higher than their true tax obligation.

They also touch on the potential pitfalls of transitioning from a sole proprietor to a Pty Limited and when such a move makes sense.

The bottom line for freelancers is that you need to stay on the right side of SARS, and consulting with a tax professional can help you do that. This episode is an invaluable resource that could help you understand your tax obligations and save you from tax-time turmoil.

📋 Episode Chapters

• (00:00) Welcome and introduction of guests
• (01:02) Dumisa explains how tax works for freelancers in South Africa
• (07:00) If your average tax rate is less than 25%, it is worthwhile getting a tax directive
• (08:32) When should a freelancer register as a provisional taxpayer?
• (14:45) Even if you’re not VAT registered, you can deduct from income tax
• (21:13) When to move from sole proprietor to Pty Limited
• (28:22) How to manage your tax obligations
• (38:28) SARS looks at behaviour when deciding whether to accept voluntary disclosure
• (41:44) Be on top of your admin