When someone says influencer, freelance designer, writer or content creator (collectively referred to as a creative freelancer) do you think VAT? Well, you're not alone. Ayanda Masina, Assistant Manager, and Kagiso Nonyane, Manager at BDO, point out that many creative freelancers don't consider taxes in their creative pursuits. It's not a topic that readily comes to mind when you're brainstorming ideas or putting the finishing touches on a project. But the truth is, taxes can't be overlooked.
One of the unique aspects of freelancing is the autonomy it provides. You have the freedom to choose your projects, set your working hours, and define your rates. This is the dream, right? But with great power comes great responsibility. You're not just the creative mind; you're also the accountant, the marketer, and the project manager. Balancing freedom with structure can be challenging, but it's essential for success. Tax compliance is a legal business requirement and if not done properly, it shouldn’t come as a surprise if you’re contacted by the South African Revenue Service (SARS) due to the non-payment.
Just as your creative portfolio is your masterpiece, your financial portfolio is equally important – and your responsibility to manage. It includes your tax records, expenses, and income. Managing your financial portfolio with as much dedication as your creative one ensures a smooth journey in the world of freelancing.
As a creative freelancer, you're not just juggling creative projects; you're also juggling the complexities of the tax landscape. You need to understand terms like "Employer," "Employee," and "Remuneration," as defined in the Income Tax Act. Some research upfront can save you from financial stress down the road.
For tax purposes, employers withhold employees' tax (PAYE) on "remuneration" as defined in the Income Tax Act. If you don't fit the "employee" and "remuneration" definitions, it's time to consider the Value-Added Tax (VAT) provisions.
VAT is a 15% tax levied on the supply of goods or services by a vendor in the course of carrying on an enterprise. Don't let the jargon intimidate you. In simple terms, if you're providing services or selling products, and you cross a certain income threshold (usually R1 million in a 12-month period), you need to register for VAT.
For creative freelancers, especially those earning over R100k monthly, VAT registration becomes a necessity. It's not just a legal obligation; it's a financial best practice. By registering for VAT, you ensure you're charging and accounting for taxes correctly. This way, you avoid the risk of penalties, interest, or even criminal charges for non-compliance. Registration means you'll need to issue tax invoices and report VAT to SARS.
Voluntary Disclosure Program (VDP): Your Safety Net
But what if you've missed the VAT registration deadline or realised you haven't been charging VAT when you should have been? There's a lifeline called the Voluntary Disclosure Program (VDP). This program allows you to rectify your tax situation without facing criminal prosecution.
Through the VDP, you can:
- Avoid criminal charges for non-compliance.
- Receive a waiver for administrative penalties and understatement penalties.
So, even if you've made a mistake, there's a path to redemption.
In your creative journey, don't forget to paint a clear picture of your financial obligations. Understanding the tax landscape, maintaining diverse portfolios (both creative and financial), and knowing when VAT applies are vital to your success.
In the end, it's all about understanding your tax responsibilities and the intricacies of your relationships with clients. Before you dive headfirst into your creative projects, take a moment to ensure your tax ducks are in a row. It's an investment in your financial well-being and the freedom to keep focusing on what you do best – creating.