Earning a salary and having a sole prop on the side, how does the tax work?

I am employed and earn a regular salary from my employer. BUT I also run a small business (just me as Sole Prop) on the side. (I help people with Web development and design work)How does tax work in my case? Do I need to put away a percentage of each transanction and pay it manually each year or how does it work? I don't want to get into any trouble with the tax man :-)

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TaxTim TaxTim says:
3 July 2014 at 13:57

As a sole proprietor you would need to register as a provisional taxpayer? which would mean you submit 2 extra returns a year. An IRP6 is a return of an estimate for the year's earnings which SARS will then calculate how much tax you need to pay. The PAYE already paid on your salary will get deducted however so don't worry you won't have to pay twice. You would include all your income and then all your expenses from running your business which include anything spent on earning that income. You can also depreciate any assets used for business purposes and make use of our wear and tear calculator.

Andre says:
3 July 2014 at 14:15

Thanks Tim, so it not as simple as paying 25% tax ons the second income?

Since its a deisgn business, I honestly dont know how much will come in each year. In other words, I could get three contracts in in one month and then for 8 months have no additional income.

What would you advise I do?

TaxTim TaxTim says:
3 July 2014 at 14:20

Using the tax tables as per the 2015 Budget would give you an indication of how much tax will be paid. So for example, if you earn R170 000 in salaried income and another R30 000 in profit from the business then the extra amount would be taxed at 25% as this is the bracket. So you should apply this sort of thinking and keep that money aside each month.

Andre says:
3 July 2014 at 14:32

So, if I understand you correctly:

I get a net salary of R21447.81 per month. (CTC being R350 000)

Does the additional income get taxed at 35%?

TaxTim TaxTim says:
3 July 2014 at 14:35

If your taxable income, so the amount you get taxed on, is in that 35% bracket then any additional income will be taxed at that rate too, it is your marginal rate of tax.

Andre says:
3 July 2014 at 14:44

Last question, so I need to be a provisional tax payer? I cant just look back each year at what came in 'extra' and then declare it when filing my tax return to SARS?

TaxTim TaxTim says:
3 July 2014 at 14:48

If you earn less than R20 000 in extra profit then you would be able to do this, however more than that and SARS may impose penalties for not registering as a provisional taxpayer.

Andre says:
3 July 2014 at 14:56

Thanks tim

TaxTim TaxTim says:
3 July 2014 at 19:32

Only a pleasure!

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