What is Provisional Tax?
Provisional Tax is not a separate tax. It is a method of paying your income tax in advance (in 2 payments) thereby assisting you to not pay a large amount at once.
Who is liable?
All companies are Provisional Taxpayers. Your company automatically becomes a Provisional Taxpayer when you register it.
Individuals who receive income other than a salary (e.g. rental income, interest income, income from a side business etc.) fall into the Provisional Taxpayer category and need to register as such. Normally Directors fall into this category as well.
If you only earn an income from a salary or wage then you are not classified as a Provisional Taxpayer.
When does it need to be paid?
The first payment needs to be calculated, submitted and paid within 6 months of the year of assessment. If your Financial Year starts in March then this will be 31st August. The submission form is an IRP6
The second payment needs to be calculated, submitted and paid no later than the last working day of the year of assessment. If your Financial Year starts in March then this will be 28th February. The submission form is an IRP6
There is a third payment option which is voluntary and available to anyone who would like to make a top-up payment (if they think they have paid too little.)
For Individuals, your first payment will be 31st August and the second will be 28th February. The top-up payment is the 30th September.
What happens after I submit and pay?
Every year we need to calculate your Taxable Income for the year. We then subtract your first provisional tax payment and then your second and we come out with an amount that you either still owe or a refund due to you.
The Provisional Tax calculations and payments are assisting you with this final submission.
For Companies, we submit an ITR14 which is due by the 28th February (if the Financial Year starts in March)
For Individuals, this is known as and ITR12 which is due by the 31st January
How do I calculate my Provisional Tax?
It is very important to know that you have to be as accurate as possible. If you are not, then you could face an under-estimation penalty or even worse, an over-estimation penalty.
If your Taxable Income is R1Mil or Less:
If your taxable income for the year is R1Mil or less, you’re at risk for an under-estimation penalty if your estimate in your second provisional return turns out to be less than 90% of your actual annual taxable income and is also less than your ‘basic’ amount. Your ‘basic’ amount is your taxable income on your most recent, previous assessment.
If your Taxable Income is more than R1Mil:
If your taxable income is more than R1Mil, you need to ensure that your estimate of taxable income on your second provisional return is no less than 80% of your actual taxable income. SARS does not consider the ‘basic’ amount when taxpayer’s taxable income is more than R1Mil.
Herewith a brief framework for the calculations. All amounts should be estimated for a 12 month period:
- Determine Gross Income
- Deduct Exempt Income
- Deduct Allowable Deductions
- Add Capital Gains
- Multiple by Tax Rate
- Deduct Rebates
- Equals Tax Payable
- First Provisional Tax Payable will be calculated on estimates. The Tax Payable in Step 7 must be divided by 2 (for 6 months) and that is the amount payable
- Second Provisional Tax Calculation should be calculated on actuals (as far as possible.) Once the Tax Payable in Step 7 is calculated then the first provisional tax paid must be deducted and the balance must be paid over.
- For Individuals: you will deduct any PAYE you have paid over
What happens if I miss the deadline?
You will be subject to late penalties imposed by SARS on any late submissions or payments.
As a responsible business owner it is imperative that you meet your tax deadlines. And if you are unsure then please speak to your Tax Consultant.
Understanding each section of the IRP6 on eFiling
Particulars of Taxpayer – will already be completed. Check to ensure that these are still correct.
Period – ensure that the correct period is checked – for example, first period for the 2022 tax year is due 31 August 2021 and the second period is due 28 February 2022.
Turnover – Total gross income received before exemptions and deductions.
Estimated taxable income – all your income minus the business-related expenses incurred in earning that income. Also subtract any pension fund, retirement annuity fund contributions, donation deductions and any exempt income.
Tax on estimated taxable income – this amount will automatically calculate.
Less: Primary, secondary and tertiary rebates (for individuals only) – depending on your age, this amount will already appear on the return.
Less: Medical scheme fees (for individuals only) – this is a credit that goes toward providing relief if you or your employer pay for a private medical scheme. For the 2022 tax year this amounts to R 332 per month for the first two members each and R 224 per month for every member after that. For the 2021 tax year this amount was also R 319 per month for the first two members each and R 215 per month for every member thereafter.
Less: Additional medical expenses (for individuals only) – if your medical aid costs exceed 4x the above medical credit (3x if you are over 65) then a portion of your costs PLUS Out of Pocket Medical expenses can be claimed here as a credit..
Tax for the full year – will automatically calculate based on the tax tables.
Tax for this period – this amount will automatically calculate and will be divided in two for the first period.
Less: Employees tax for this period – add up all the employee tax you paid from all your pay slips. Only add the PAYE on your salary, don’t include PAYE on Lump Sums, UIF or SDL.
Less: Foreign tax credits for this period – if you earned money from overseas and any tax was withheld or paid, include that amount here.
Less: Provisional tax paid for 1st period – You will need to enter the amount that you have paid for the first provisional tax return. Only applicable for the second provisional tax return.
Tax payable for this period – this amount will automatically calculate.
Add: Penalty outstanding from 1st period – You will need to enter the penalty amount if a penalty was raised on your first provisional tax return, only applicable to the second provisional tax return.
Add: Interest outstanding from 1st period – You will need to enter the interest amount if interest was raised on your first provisional tax return, only applicable to the second provisional tax return.
Amount payable – this amount will automatically calculate.
Add: Penalty on late payment – this amount will automatically calculate.
Add: Interest on late payment – this amount will automatically calculate.
Total Amount Payable – this amount will automatically calculate.
Unusual/Infrequent amounts – this is the income that you do not normally earn. For example, capital gains and lump sums.
Historical information – this will already be completed, based on your previous year’s income.
Payment detail – provides you with the payment reference number and beneficiary ID.
To summarise, don’t forget to submit your Provisional Tax returns – even if your company made a loss. You don’t want to incur unnecessary penalties.