Tax tips for the self-employed in South Africa

South African employees are subject to monthly tax deductions from their salaries. This is known as Pay As You Earn tax, or PAYE.

However, self-employed people – i.e., those who derive an income from sources other than a permanent employer – are obliged to register for provisional tax and make tax payments during the year of assessment. 

This article explains how to register for personal income tax (PIT), when to file, and how to claim expenses.

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An overview of income tax for the self-employed

Sole traders and owners of businesses - whether registered or informal - must register for PIT in their personal capacity, and declare their business income annually. The form to be used is an Income Tax Return for Individuals (ITR12).

Registering for tax as a self-employed individual in South Africa

Who needs to register for tax?

Anyone who earns more than the tax threshold within a tax year needs to register as a taxpayer with the South African Revenue Service (SARS), says Nicci Courtney-Clarke, chief operating officer and head of tax at TaxTim.

“The tax threshold for the 2024 tax year is R95,750 for those aged under 65 years, R148,217 for those aged 65 years and older, and R165,689 for those aged 75 years and above,” she explains.

As relates to your business, you should still register below these thresholds, even if the business runs at a loss, says Thabani Nkosi, a tax specialist at Hulamin.

“You can use these losses to reduce your taxable income during the current or future year of assessment,” Nkosi notes.

How to register for tax

You can register as a taxpayer at any SARS branch or via SARS eFiling. Have your South African ID/passport or proof of residency ready, and be sure to first check you don’t have an existing tax number. A previous employer may already have registered you.

On registration, you will receive an IT150 Notification of Registration containing your unique 10-digit tax reference number. You can also request your tax number on the SARS website, notes Courtney-Clarke.

Penalties for non-registration

There are penalties for non-registration if you are over the tax threshold and liable for tax. Courtney-Clarke says that failing to submit a tax return could also lead to a criminal investigation if SARS believes you are guilty of tax evasion.

Understanding the different taxes for self-employed individuals in South Africa 

Income tax 

Income tax refers to normal tax on income.

“Individuals are taxed based on a sliding scale, so the more you earn, the more you pay,” says Courtney-Clarke. “Self-employed individuals are taxed using the same tax tables as salaried employees.”

Value-added tax (VAT)

You must register as a VAT vendor if you expect your turnover to exceed R1m over 12 months. 

“If you earn R1m and you’re not registered, you’ll still be liable for VAT,” notes Nkosi. “You effectively become an agent of SARS, and you collect VAT on their behalf.”

VAT administration can be tricky and time-consuming, so it helps to work with a tax practitioner or accountant.

Provisional tax

Provisional tax is a mechanism by which you can pay your tax in instalments during the tax year, rather than paying a large amount to SARS, says Courtney-Clarke.

If you are employed, you should still register for provisional tax if you run a business on the side, and your total income exceeds the tax threshold.

Claiming tax deductions as a self-employed individual in South Africa

Home office expenses

You can deduct home office expenses if you’re self-employed and you work from home. If your office occupies 10% of your home’s total area, for example, then 10% of your costs can be claimed, notes Lana Visser, financial planner at Fiscal Private Client Services. 

Courtney-Clarke gives an example, as follows:

Total annual costs:
Rates (R11,400) + Electricity (R10,000) = R21,400
House is 60m²
Office is 3m x 4m = 12m²
Tax deductible portion to claim in your annual tax return = R21,400 x 12 / 60 = R4,280.

A word of warning: should you choose to claim for home office expenses, a portion of your home will be designated a business, and you will have to pay capital gains tax if you sell your property.

“You could pay R500,000 in taxes on your property while claiming a deduction of only R1,000 a month, which wouldn’t serve you,” warns Nkosi. 

Travel expenses 

You can claim travel expenses if you use your vehicle for business purposes.

Keep an accurate vehicle logbook that shows opening and closing odometer readings and full details of business and private mileage for every trip. Record the reason for each trip and the date, starting point, destination, and kilometres travelled.

“Note that travel from your home to the office is always considered private travel,” says Courtney-Clarke.

Keep proof of maintenance expenses such as petrol, oil, services, and insurance. TaxTim has a travel calculator to help you determine which deductions you can claim.

Advertising and marketing expenses

You may claim social media costs, money spent on Facebook and Google campaigns, and retainers for marketing contractors or agencies.

Professional fees and memberships

Any expenses incurred relating to your business can be claimed as a deduction. For example, if you’re a tax practitioner who runs a tax consultancy, and you are registered with a regulatory body, e.g., the South African Institute of Chartered Accountants (SAICA), you can claim SAICA membership fees.

Keeping accurate records as a self-employed individual in South Africa

Importance of keeping accurate records

To be safe, you should keep all of your documents for at least five years, as SARS can go back as far as that and reopen their assessments, says Courtney-Clarke.

Types of records to keep

Keep a detailed list of all of your transactions (income and expenses) with dates recorded. Also keep supporting documents for each transaction, e.g., invoices, receipts, proofs of payment, etc. Physical or digital copies are acceptable for these.

“These documents must be in your name, fall within the relevant tax year, and clearly show dates and amounts,” says Nkosi.

He adds that, because the ink on receipts can fade over time, you should photocopy or scan them – particularly as SARS can ask for receipts backdated for five years.

Record-keeping systems

There are many software packages you can use. Microsoft Excel is included on most computers running Windows. Paid accounting packages include Sage One, Xero and SMEasy, among others. 

Submitting tax returns as a self-employed individual in South Africa 

When to submit tax returns

You will need to submit a first provisional return (IRP6) at the end of August each tax year, a second provisional return (IRP6) at the end of February, and a final tax return (ITR12) by January the following year.

For the current tax year (2024), the first provisional IRP6 is due on 31 August 2023, the second provisional return is due on 29 February 2024, and the final tax return for 2024 will be due in January 2025.

How to submit tax returns

The easiest way to submit returns is via SARS eFiling or your tax practitioner. You will need to register for eFiling if you have not yet done so. You can find a guide to registering for efiling here.

Nkosi says filing at your nearest SARS branch is an option; however, most SARS employees who deal with the public are not tax experts and generally assist only with administration.

Penalties for late submission 

A fixed administrative penalty is levied for late ITR12 tax return submissions. This is based on your taxable income, and it can range from R250 to a whopping R16,000 for each month the non-compliance continues.

Note that you are responsible for ensuring your tax returns are filed, even if you enlist the services of a tax consultant. 

Paying taxes as a self-employed person

Payment methods

You can pay your tax bill via an Absa, Capitec, FNB, Nedbank or Standard Bank branch, your eFiling profile, electronic funds transfer (EFT), or the SARS MobiApp. 

“You can also link your bank account to your eFiling profile, but you will still need to authorise the payment via online banking or your banking app,” adds Nkosi. 

Most banks have a pre-loaded beneficiary list that includes "SARS - tax type". Remember to include your reference number on your payment to ensure the funds can be traced back to you.

Penalties for late payments 

If you miss the August or February provisional tax deadline, you will receive a 10% penalty plus interest. This penalty will apply if you owe additional tax when you submit your ITR12, as indicated on the assessment (ITA34).

You will also be penalised if you underestimate your second provisional tax payment.

Work with a tax professional 

In order to safeguard the accuracy of your tax submissions, it may be worth enlisting a tax professional. Should you choose to do so, ensure the practitioner is registered with SARS and a recognised controlling body, a list of which can be found here.

Tip: If you’re struggling with debt, you may be unable to pay your taxes. Debt consolidation may assist in this situation.