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Started freelancing, not paying provisional tax. Can TaxTim help?

I have being earning some money on the side as a freelancer during this last tax year and I went fulltime freelancing in a personal capacity at the end of 2011.

Will TaxTim be able to guide me with the expenses I can claim as part of operating as a freelancer? SARS is very strict on when certain expenses can be claimed. They seem to only allow expenses when salary is earned on a commission basis.

TaxTim TaxTim says:
13 August 2012 at 21:59

It all depends how you invoice the various companies you work for. Do you perform work for the one company or do work for many?

If you are earning from various sources and no one has been deducting PAYE then you will be liable to pay over the tax yourself in which case you should be registered as a provisional taxpayer.

If however you are only working for one employer and they have issued you an IRP5, what is the code they have used and have they deducted employee's tax for you already?

I will be able to answer the question a lot better with that information.

Generally speaking though if you are a freelancer and run your own business then yes TaxTim guides you through this process. When you get to the section on local business, all the relevant questions are asked. Remember that running your own business allows you to deduct all BUSINESS related expenses in the production of the income earned.

Stephen says:
13 August 2012 at 22:39

Thank you for the response.

For the last financial year it is a mixture of a primary PAYE paying job, a tiny PAYE paying contract, and some freelancing for multiple clients that I invoiced directly, all overlapping with regards to time frames worked. I have not paid provisional tax on the earnings from the freelancing.

I suspect SARS is happy as long as I declare all earnings they do not know about. I will deduct the usual expenses such as retirement annuity contributions and medical expenses paid out of pocket.

With regards to business related expenses. I'm unable to use my home office as one as it does not have its own external entrance. I do not drive for business either. The only expense that I can think of that relates directly to my freelancing is the monthly ADSL costs. I assume that dedicated insurance on electronic equipment used in my business would qualify, as well as a portion of my cell phone subscription?

Would hardware bought for the production of goods be a valid expense? In my case a mobile phone used to develop and test mobile software.

Thanks again for taking the time to answer.

TaxTim TaxTim says:
13 August 2012 at 23:17

Only a pleasure!

So for your Income Tax Return you would have a series of IRP5's which would hopefully have been captured by SARS and all the related PAYE already taken into account. For your other income earning activities, you would enter these under the local business section of the return and then include the related expenses. All this will be taken into account when calculating your overall tax liability regardless of there being an overlap.

You are correct, you have to declare all the income earned and the fewer expenses claimed against that income the better, in SARS point of view.

A home office need not necessarily have a separate entrance, the following requirements must be met however:

The part must be regularly and exclusively used for purposes of the trade;
The part of the home in respect of which a claim is submitted must be occupied for purposes of a "trade"; and
The part that is so occupied must be specifically equipped for purposes of the trade.

Basically the area in the home must be easily identifiable as a an office and only used as an office. If this is the case then you may deduct office related expenditure against the income earned from work performed in the office. This does not relate to your salaried income you earned earlier in the year. The types of office expenses allowed are:

rent of the premises;
interest on bond;
cost of repairs to the premises; and
other expenses in connection with the premises.
Other expenses such as
rates and taxes;
office equipment; and
If you can apportion these expenses from the overall based on the size of the office as compared to the whole premises then you are allowed to claim this deduction against income earned. You must be able to justify it however.

You can claim wear & tear or depreciation on the value of your cell phone and of course all mobile and adsl costs as well, provided they are business related costs. SARS are being difficult with the value of the cell phone, but it is a legitimate deduction, both as a salaried employee and definitely as a self-employed freelancer.

I hope this helps answer your questions? Please ask away if there is anything else you need assistance with.

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