Sole Proprietorship Simplified: Insights from Tax A Sured (Pty) Ltd

Understanding Sole Proprietorship in South Africa

Sole proprietorship, the simplest form of business type, is a business owned and operated by a natural person. This individual may also call themselves an “independent contractor” or “freelancer”. If the business fails, any of your assets, including your personal assets, can be seized to pay for all the liabilities owing. The business has no existence separate from the owner, who is called the proprietor.

Key Features of a Sole Proprietorship

• Simplicity: It is simple to establish and operate.
• Decision-making: The owner is free to make decisions.
• Legal requirements: There are minimum legal requirements.
• Profit: The owner receives all the profits.
• Discontinuation: It is easy to discontinue the business.

However, there are some disadvantages:

• Unlimited liability: The owner is legally liable for all the debts of the business.
• Limited capital: The business capital is limited to whatever the owner can personally secure.
• Limited skills: A single owner may have limited skills.

When to Register a Business?

For many entrepreneurs with small businesses, it makes sense to run a partnership or sole proprietorship, which are the simplest businesses to maintain. However, you might need a more formal business structure if you’ll need to take on debt to grow your business or if you want to pitch for business from government and large companies.

It may make sense to register a business when you want to:

• Bring other shareholders on board
• Limit your personal liability for company debts
• Reduce personal exposure to the business’s risks
• Formalise your business before seeking investment or a loan
• See opportunities to minimise your tax burden or take advantage of tax incentives for companies
• Create a business that can become sellable.

Business Registration Process

Registering as a sole proprietor with CIPC is not required. Most sole props have a “trading as name” which can be used when opening a bank account for your business and need not to be registered at CIPC.

Sole Proprietor Tax

Sole proprietor’s pay tax on their taxable income as an individual and not as a company. Income generated from the business will be added to the owner's personal income and taxed according at their marginal tax rate.

Registering With SARS

Assuming you are already registered with SARS personally, then by default your sole proprietorship will also be registered. If you are self-employed and earn taxable income above the tax threshold which is R 95,750 for the 2025 tax year (2024: R 95,750), you need to register for Provisional Tax.

Registering For VAT

You should register as a VAT vendor if you expect your turnover to exceed R 1 million in a 12-month period. As soon as your turnover hits R 1 million, you are required by law to become a VAT vendor.

Employee Tax & Obligations

Should you decide to employ staff, SARS will require you to register as an employer in order to pay over PAYE, UIF and SDL. You can do this quickly and easily online via eFiling.

UIF (Unemployment Insurance Fund)

If you have employees that works more than 24 hours a month, you as the employer are required to pay over UIF to SARS each month. This is equal to 2% of their salary (1% should be deducted from the employee’s salary and the other 1% should be contributed by the employer).

Besides registering for UIF with SARS, you also need to register with the Department of Labour. You can register your business by completing a U1-8 form or on U-filing, and each new employee needs to be registered using a UI-19 form. You can obtain these forms from the Department of Labour or online at www.labour.gov.za .

SDL (Skills Development Levy)

SDL is a levy imposed to encourage learning and development in South Africa and is determined by an employer's salary bill. The funds are to be used to develop and improve skills of employees. SDL only becomes payable if your estimated salaries for the year total more than R 500,000 for the year. It is equal to 1% of the total amount paid in salaries to employees.

Pros and Cons of Operating as a Sole Proprietor

Pros:

• Simple to set-up
• Fewer formalities required
• Tax paid to SARS may be less if just starting out and should you qualify for Turnover tax the tax is favourable compared to a business.

Cons:

• The Sole Proprietor’s own assets which are unrelated to the business are subject to claims of business creditors.
• The proprietor carries the full risk of failure.
• Perpetual existence is not possible. If the owner dies the proprietorship comes to an end.

Navigating the complexities of tax and legal requirements can be daunting for a sole proprietor. This is where Tax A Sured (Pty) Ltd comes in. As a small firm offering bespoke services, Tax A Sured (Pty) Ltd is committed to helping you grow your business and wealth with informed tax planning and assured compliance. Whether you are a seasoned entrepreneur or a first-time taxpayer, we are here to assist you. From handling your annual return submissions, payroll, and accounting needs, and advising on estate taxes and expat taxes, Tax A Sured (Pty) Ltd offers a range of services tailored to your needs. Let us handle your tax matters, so you can focus on growing your business.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your adviser for specific and detailed advice. Errors and omissions excepted (E&OE).