Personal Service Provider Tax Trap: Why Your Pty Might Cost You More (SA 2026)

The trap in one sentence

If your Pty Ltd is essentially you under a different name - one director, one client (or one dominant client), you doing the work personally - SARS can re-classify you as a Personal Service Provider (PSP). The Pty then loses most of the tax advantages people register Ptys for.

From r/PersonalFinanceZA: "If you register a PTY and you're a director and the only person doing the work you'll be seen as a personal services provider, which has negative tax implications."

Are you a PSP? The tests

SARS uses these tests (Income Tax Act, Fourth Schedule):

1. The service is rendered personally by a person who is a connected person in relation to the company; AND
2. ANY of: (a) that person would have been an employee of the client if the service was not rendered through the company, OR (b) the person provides the service mainly at the client's premises and is subject to the client's control or supervision, OR (c) more than 80% of the company's income for the year of assessment comes from one client.
3. If yes to (1) AND any one of (2), your Pty is a PSP.
4. Exception: if the company employs three or more full-time employees who are NOT connected persons to the entity (i.e. not shareholders, members, settlors, beneficiaries, or otherwise connected) throughout the year of assessment, the PSP rules do not apply.

What changes if you're a PSP

• Tax rate: 27% on all income (same as ordinary Pty rate). No SBC concessional rates.
• Allowed deductions are severely limited: only legal compensation (salary), pension/RA contributions, and certain bad debts.
• No deduction for: rent, internet, phone, vehicle, advertising, training, depreciation, etc. - all the things the Pty would normally deduct.
• PAYE must be deducted by the client BEFORE paying the Pty. The client withholds at the company tax rate (27% in 2026) unless you furnish an IRP30A tax directive from SARS.

How to avoid the PSP trap

• Have multiple clients. Aim for no single client over 70% of revenue.
• Hire 3+ full-time, unconnected employees (qualifies for the PSP exemption).
• Be a sole proprietor instead. Counterintuitively, a sole prop is often the cheaper, simpler structure for a one-person consultancy. (See our sole-prop vs Pty calculator.)
• Get an IRP30A directive in advance if your client structure forces a temporary PSP situation.

Real example math

You bill R600,000 in a year, working for one corporate client.

• As a sole proprietor: tax on R600k personal income = ~R136,000.
• As a normal Pty (no PSP rules): R600k - R200k expenses = R400k taxable -> 27% = R108,000 company tax. If you take the rest as dividends, +R20% = ~R65,520 dividend tax. Total ~R173,000.
• As a PSP Pty: R600k taxable (almost no deductions allowed) -> 27% = R162,000 company tax. Plus dividend tax if distributed. Worst of all worlds.

PSP is not just a label change - it can cost you R30,000-R60,000 a year vs being a sole prop.

Frequently asked questions

Tools to help

Related guides