· Built around the PAYE vs contractor vs own company calculator
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An IT contractor is offered work worth R100 000 a month to the client. Take it as a salary, invoice it in your own name, or set up a (Pty) Ltd with your spouse? The client spends the same in all three. What changes is who pays the tax, which costs you may deduct, and how much admin you take on. This post runs one example on the SARS tables for the 2027 tax year (1 March 2026 to 28 February 2027). The calculator runs yours.
Run your own numbers
This is the full PAYE vs contractor vs own company calculator, three columns side by side. Change the share from your biggest client and watch the company column flip when it crosses 80%. Max salary, no dividends fills in the highest salary the company can pay.
The example
- R100 000 a month is the cost to the client - a salary package with the employer's UIF and SDL in it, or invoices excluding VAT.
- You put R7 500 a month into an RA, your spouse R1 500. You are on medical aid alone; your spouse pays R1 000 a month in medical costs out of pocket.
- Work costs: R3 000 a month running costs (software, phone, travel), R2 000 a month home office and R15 000 a year wear-and-tear on a laptop you bought. They are paid in all three routes - only the tax deduction differs.
- In the company you take R40 000 a month salary, your spouse R15 000 for real work, and the profit comes to you as a dividend. All work is for one client (100%).
The three routes side by side
| A month | Salary | Sole prop | Own company |
|---|
| Gross | R98 835 | R100 000 | R100 000 |
| Costs paid | R6 250 | R6 583 | R7 750 |
| RAs, both of you | R9 000 | R9 000 | R9 000 |
| All tax | R26 594 | R24 708 | R22 718 |
| Household cash | R56 991 | R59 709 | R60 532 |
| Effective tax rate | 26.91% | 24.71% | 22.72% |
Household cash is what you and your spouse have left after costs, both RAs and every tax. The company is ahead of the salary by R3 541 a month in the example - but it is flagged as a personal service provider, and that is the part to read before you register anything.
1. The salary: CTC is not your gross
- Gross pay is R98 835, not R100 000. The employer's 1% UIF (R177.12, on pay up to the R17 712 ceiling) and the 1% skills development levy (R988) come out of the cost to company first - the employer cost calculator shows the split.
- Tax is R26 594 a month: PAYE R26 416 on the SARS 2026/27 tables, after the RA deduction and the R376 medical credit, plus your own R177.12 UIF. The take-home pay calculator does this side on its own.
- Section 23(m) bars most deductions for a salary earner. It allows retirement contributions, legal costs, bad debts, refunds - and wear-and-tear (s11(e)) on equipment you bought yourself and use for the job. Here that is R1 250 a month.
- Running costs are never deductible on a salary. The R3 000 a month comes out of your pocket with no tax back.
- A home office counts only if more than half your duties are done there, in a room used regularly and exclusively for the work (s23(m) read with s23(b)). The example does not qualify; the home office calculator checks your case.
- You get UIF cover, paid leave and no provisional tax. Accountant fees: R0 if you file a simple ITR12 yourself on eFiling.
2. The sole-prop contractor: more deductions, more admin
- Expenses incurred to earn the income come off before tax (s11(a)) - the running costs, the home office (s23(b), used regularly and exclusively for the trade) and wear-and-tear. Private costs do not (s23(a)).
- Tax is R24 708 a month, R1 886 less than on the salary, paid as provisional tax in two IRP6 payments - the provisional tax calculator splits them. No UIF, and no UIF cover.
- Accountant: about R4 000 a year in the example - your ITR12 and two IRP6 returns.
- The 80% rule does not apply to an individual - SARS limits the PSP rules to companies and trusts. But if the client controls how you work at its premises, you count as its employee under the Fourth Schedule: it deducts PAYE and s23(m) applies again.
- To turn a salary into a matching day rate, with leave and bench time, use the contractor rate calculator and the post the day rate that really matches your package.
3. Your own (Pty) Ltd: salary, then dividend
- Company tax is 27% from the first rand - no threshold and no rebate, unlike an individual. The company tax calculator works it out.
- What is left after company tax is paid out as a dividend, less 20% dividends tax (dividends tax calculator).
- So a rand paid out as a dividend loses 41.6% all in: 27%, then 20% of the 73% left.
- A rand of salary is deductible to the company and taxed at your marginal rate instead - 31% on R40 000 a month. Salary is cheaper in every bracket up to 41% (taxable income up to R1 878 600 a year); dividends win only in the 45% bracket.
- At R40 000 salary the household keeps R60 532 a month: company tax R11 124, dividends tax R5 115, and R5 929 PAYE on the two salaries. The net dividend is R20 461 a month.
- Raise your salary to R74 000 and it is R62 566 - R2 034 a month more. The salary or dividend calculator tests the split on its own.
- Accountant: about R18 000 a year - ITR14 and financial statements, two IRP6, monthly EMP201 and the EMP501 payroll returns, the CIPC annual return and both your ITR12s.
4. The trap: the personal service provider rule
SARS Interpretation Note 35 sets it out. A company is a personal service provider (PSP) when the service is rendered personally by a connected person - you or your spouse - and any one of these holds:
- that person would be the client's employee if the company were not there, or
- they work mainly at the client's premises under its control or supervision, or
- more than 80% of the company's income from services comes from one client (or its associated companies).
What it costs:
- The only way out is 3 or more full-time employees all year who are not connected to you. Your spouse and relatives are connected persons, so your spouse never counts.
- Most deductions are lost under s23(k). A PSP keeps only pay to employees and their retirement contributions, legal costs, bad debts and the costs of premises and assets used wholly for the work. In the example R54 000 a year of running costs, accountant fees and VAT admin goes back into taxable income.
- No small business corporation rates - a flat 27%.
- The client must withhold 27% employees' tax from every invoice - R324 000 a year here, R190 512 more than the company actually owes. It comes back on assessment, or with a tax directive.
- IT and software development are a personal service under s12E, which also rules out SBC rates for a company that is not a PSP.
Drop the biggest client to 60% and the PSP flag goes: R61 504 a month at a R40 000 salary, R972 more than as a PSP - and nothing withheld from invoices.
5. Paying your spouse
- A spouse salary is deductible to the company, even in a PSP - s23(k) still allows pay to employees.
- It must be for real work at what you would pay a stranger. Income from a spouse's company that is excessive for the work done is taxed in the other spouse's hands (s7(2)), and SARS can refuse the company the deduction.
- Splitting saves less if your spouse already earns - the company salary stacks on top of their other income. Put it in the calculator's Spouse's other income field.
6. VAT: the compulsory line is now R2.3 million
- Registration is compulsory once taxable supplies pass R2.3 million in any 12 months - raised from R1 million from 1 April 2026 (SARS, Budget 2026).
- R100 000 a month is R1.2 million a year, so in the example registration is voluntary. Above R191 667 a month it is compulsory, and the calculator locks the box.
- Registered, you add 15% VAT to every invoice and pay it over (VAT calculator). The VAT itself is passed to the client; the cost to you is the admin.
- VAT201 returns by a practitioner: about R1 000 a month in the calculator, added to the contractor and company columns when you tick VAT registered.
Not tax advice. These are estimates on one example. The PSP test, the s7(2) test for a spouse's pay and the employee test for a contractor turn on facts SARS weighs case by case. Ask a registered tax practitioner before you set up or change a company. UIF on company salaries is left out of the calculator.
Sources
- SARS, rates of tax for individuals, 2027 tax year (brackets, rebates): sars.gov.za. Medical credit R376 and the R17 712 UIF ceiling: the SARS 2026/27 figures the CalcSA calculators use, checked 15 October 2026.
- SARS, companies, trusts and small business corporations: 27% for years of assessment ending 1 April 2026 to 31 March 2027; PSPs are taxed as a company: sars.gov.za, read 24 October 2026.
- SARS, dividends tax 20%: sars.gov.za.
- SARS Interpretation Note 35 (issue 5), employees' tax: personal service providers and labour brokers - the PSP definition, the 3-employee exclusion, s23(k) and withholding: sars.gov.za (PDF).
- Income Tax Act 58 of 1962 - s7(2), s11(a), s11(e), s12E, s23(a), s23(b), s23(k), s23(m) and the Fourth Schedule: SARS primary legislation; employee deductions and home office: SARS comprehensive guide to the ITR12 (PDF).
- SARS, value-added tax - compulsory registration threshold raised from R1 million to R2.3 million from 1 April 2026: sars.gov.za, read 16 October 2026.
- Skills development levy 1% of payroll for employers paying more than R500 000 a year: SARS, as used by the CalcSA employer cost calculator.
- All rand figures are the calculator's defaults on 24 October 2026. Costs, accountant fees, VAT admin and the salary split are assumptions - change them in the calculator.
Calculators used in this post
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