As a freelancer, you’re in charge of your own destiny. You can pick and choose assignments, avoid mind-numbing daily traffic jams and do your work in your own time and at your own pace.
You’re also responsible for paying your own taxes – and this can be an intimidating prospect. It requires some know-how, or you’ll end up paying the South African Revenue Service (SARS) more than you really need to.
Here we provide some tax tips for freelancers, to help ensure you can meet your obligations easily and efficiently, and remember to claim for relevant deductions. Please note that this doesn’t constitute expert tax advice – for that, you’ll need to consult a qualified accountant or bookkeeper.
In this article, we cover:
- using the third provisional tax date
- saving for bi-annual tax payments
- tax-deductible business expenses
- claiming home office expenses from SARS
- claiming your medical tax credits
- keeping supporting tax documents
- useful links for more tax information.
Use the third provisional tax date
Because you don’t have a fixed monthly salary, you have to register as a provisional taxpayer. This means you have to estimate your annual tax and pay it to SARS twice a year.
The first payment is due by 31 August, and the second by 28 February. But, there’s a catch; your estimated tax liability must be within 90% of the actual amount you owe, based on the assessment for that tax year.
Fortunately, a third optional payment can be made by 30 September in order to keep your total tax payment within the permitted range. Be sure to use this window of opportunity, or you’ll have to pay a penalty.
To keep track of provisional tax payment dates use our handy tax calendar for freelancers, small businesses and the self-employed.
Save for bi-annual tax payments
To avoid the shock of having to pay two large amounts to the taxman each year, we recommend you save a portion of your income each month. You can put it in an interest-bearing savings account and access it when you need to settle your tax.
Tax-deductible business expenses
Be sure to keep a record of your business expenses. Create a self-calculating Excel document containing all the cost categories. Add a column for your monthly turnover and offset your expenses against it. You’ll need all the facts and figures to enter on your tax return (ITR12).
Freelancers usually operate as sole proprietors. This means their businesses aren’t separate legal entities.
As a sole proprietor, your business income is reported as part of your personal income. There may be both business-related and personal expenses (like medical bills) you want to claim for.
Make sure you keep comprehensive but separate records for both business and personal expenses.
Business expenses that are tax-deductible
Any costs associated with your day-to-day business operations are tax-deductible expenses. These can include things like your phone and internet costs, rental costs (such as coworking space), travel and transport, insurance fees and marketing.
Larger capital expenses that only occur once a year or so are also deductible. These expenses are usually things like equipment, new computers or vehicles. Even the cost of training or a short course can be claimed.
Conditions for claiming home office expenses from SARS
If you work from home as a freelancer, there are certain work-related expenses you can claim as part of your home office.
However, these expenses only apply to the section of your home that is used exclusively for work.
As such, you need to have a dedicated space or separate office to qualify. Working at your dining room table won’t cut it.
You also need to work from home most of the time. At least half the tax year, you have to be working exclusively from home.
Home office expenses you can claim
These are the home office expenses you can claim as a freelancer. You will need to work out percentages for some of these as illustrated below.
These home office expenses can be claimed in full:
- home office equipment
- depreciation of equipment
- work-related phone costs
- work-related stationery costs
- work-related internet and data
- office space cleaning expenses
- home office repairs and maintenance.
For these expenses, you can claim a percentage based on the size of your workspace relative to the total size of your home:
- rental costs
- interest on bond payments.
Calculating home office expenses based on office size
To separate work expenses from living expenses, you need to know what percentage of your home’s overall square meterage is taken up by your home office. This way, you can separate an expense like electricity into office use and personal use.
Say your office space takes up 12% of your home’s overall floor space. This means you can claim 12% of the expenses mentioned above.
This is an example of how you might do the calculation:
[office space over total floor space] x [total running costs per annum]
0.12 x (rates + electricity + rental)
0.12 x (12,000 + 5000 + 72,000)
0.12 x 89,000
Claim your medical tax credits
If you contribute to a medical aid scheme, you’re eligible for medical tax credits. You can deduct a portion of your monthly contribution, and a percentage of the day-to-day medical expenses you have paid from your own pocket.
The deductions must be made annually from one of the two provisional tax payments.
You’ll have the opportunity to fill in the deductibles on the IRP6 form, submitted in either August or February. Forget to claim the medical tax credits, and you’ll lose out for that year.
Keep supporting documents
SARS can request documentation to support the amount of tax you pay. Make sure you keep all the invoices and calculations in a safe place. If you don’t have evidence of your expenditure, you may be in line for a tax audit.
Most tax records must be kept for a minimum period of five years.
However, note that certain business documents must be kept for 15 years – and others must be kept indefinitely. For details, see our article on which tax documents to keep and for how long.
For more information, visit these links from SARS and other informative sources:
- SARS Provisional Tax
- Tax Deductible Business Expenses in South Africa
- Tax Tim Provisional Tax FAQ
- Legalese Freelancers and Tax
Join us at The Workspace
At The Workspace, we don’t offer help with your taxes – for that, please see a qualified accountant or bookkeeper.
However, we do offer individual professionals and small businesses comfortable, affordable office and coworking space, with business infrastructure that’s already set up and a range of on-site business services.