Enterprise Types

Sole Proprietors

Trading as a sole trader is the simplest and easiest form of a business structure. It is relatively easy to set up and start to trade as a sole trader. You will need to register with SARS and get a tax number. You will then be required to prepare and submit a self assessment personal tax return every year.

There are a number of advantages and disadvantages of operating as a sole trader:

Advantages

• Simple – It is the easiest business structure to set up.
• Control – You are in total control of the business.
• Switching – Should you decide to switch to a limited company, it is a simple process.
• Confidential – You don't need to submit your accounts to anyone else.

Disadvantages

• Unlimited Liability – If the business gets into financial difficulties, you will be personally liable for all business debts.
• Raising Finance – Unincorporated businesses can find it difficult to raise finance from banks.
• Tax – Taxes are applied at individual rates using the tax tables.
• Economies of Scale – Sole traders can find it difficult to benefit from economies of scale which larger businesses enjoy.

Companies

Key highlights of a company structure are as follows:

Independent Contractors

Independent Contractors Included in Payroll

An independent contractor should only be added to the company's payroll if their income meets the definition of remuneration. This will be the case if they render services mainly at the premises of the person by whom they are paid, and they are subject to the control or supervision of any other person as to the manner in which duties are performed.

The elements of the definitions of employee, employer and remuneration need to be satisfied for an independent contractor to be deemed an employee. Their income is subject to PAYE (and SDL) but not UIF, reported on IRP5s under code 3616.

Independent Contractors Excluded from Payroll

True independent contractors are individuals who invoice clients for services rendered or goods supplied. There is no discernible employment relationship, thus their income does not meet the definition of remuneration. Such contractors are not employees and are not subject to employees' tax or UIF.

Personal Service Providers

A personal service provider is a company, close corporation or trust where any service rendered on behalf of the entity to its client is rendered personally by any connected person, and one of the following provisions apply:

• The person would have been regarded as an employee of the client, if the service was not rendered through an entity
• The person or entity must perform such service mainly at the premises of the client and is subject to the control or supervision of the client
• More than 80% of income derived from services is received from one client or associated person

The entity will not be regarded as a personal service provider where it employs three or more unconnected full-time employees for core operations throughout the year of assessment.

Body Corporates

A Body Corporate is a legal entity made up of registered unit owners that oversee the management and maintenance of communal areas within the scheme. The body corporate maintains, manages and controls the common property on behalf of owners, decides amounts to be paid by owners, and makes and enforces by-laws.

Section 10(1)(e) exempts from income tax the levy income of a body corporate, a share block company and an association of persons. It also provides a basic exemption of up to R50 000 for all receipts and accruals other than levy income.