The first provisional tax return (IRP6) and payment is due on Wednesday 31 August 2022.
Please consider the following questions:
- Do you earn a salary from an employer who is not registered for PAYE (e.g., an Embassy)?
- Do you earn income other than your salary (e.g., income from rental property)?
- Do you earn salary/pension/annuity from different sources?
- Do you earn interest of more than R23,800.00 per year (R34,500 for persons aged 65 and older)?
- Are you self-employed?
- Are you a director of a business?
If you answer “yes” to any one of the above questions, you may be a provisional taxpayer.
What is Provisional tax?
Provisional tax is not separate from income tax. It is a method of paying your tax obligation in advance so as not to have a large tax debt when you submit your Income Tax return (ITR12/IT14). Provisional tax allows the tax debt to be spread over the tax year, based on estimated taxable income.
Much like the tax (PAYE) deducted from an individual’s salary every month, provisional tax is paid during the tax year, so that the tax obligation is settled by the time your income tax return is filed and assessed.
However, as PAYE is deducted monthly off an individual’s salary during the tax year, provisional tax is paid on two occasions during the tax year (August/ February) and is calculated, submitted, and paid by yourself.
You may, and are encouraged, to reach out to a registered tax practitioner to assist in the calculation, submission, and payment of your Provisional Tax return (IRP6).
Who is a provisional taxpayer?
Any person who receives income (or to whom income accrues) other than remuneration, is a provisional taxpayer. Therefore, most salary earners are not provisional taxpayers. Taxpayers who earn salaries/compensation/pension from multiple sources/employers at the same time may also have to pay provisional tax.
Any person who is told by the Commissioner is a provisional taxpayer, has to pay Provisional Tax.
Companies/trusts/closed corporations are also provisional taxpayers.
Excluded from provisional tax are:
Any natural person is not required to pay provisional tax if the said person:
- Does not carry on any business.
- Earns salary/compensation/pension from a single source.
- Does not have any other form of income (e.g., income from a rental property).
- Whose taxable income will not exceed the tax threshold.
- Earns interest less than R23,800 per year (R34,500 for persons aged 65 and older).
Also excluded from provisional tax are:
- A non-resident owner or charterer of ships or aircraft.
- Deceased estates.
- Approved Public Benefit Organisations or recreational clubs that have been approved by the Commissioner in terms of s30 or s30A.
- Body Corporates, share block companies or certain associations of persons that are exempt from tax.
- A small business funding entity.
When must provisional tax be paid?
For natural persons and businesses with a February year-end:
- The first provisional tax payment must be paid to SARS by 31 August, or the last business day before said date. This is six months into the tax year.
- The second provisional tax payment must be paid to SARS by 28/29 February or the last business day before the said date. This at the end of the tax year.
- A third voluntary provisional tax payment may be made within 6 months after the tax year of assessment, and before submission and assessment of your income tax return for said year of assessment.
For businesses that do not have February year-ends, need to submit, and pay provisional tax on the 6-month and 12-month mark of their respective financial year-ends (e.g., September year end will pay provisional tax on the last business day on or before 31 March and 30 September).
It is very important to note that the payment must reflect on SARS’s system by close of business on the deadline date, so it is a good idea to make payment a day or two before the deadline expires.
SARS imposes a penalty of 10% of the payable amount, on late payment of provisional tax.
How is Provisional tax calculated?
First payment: Half of the estimated tax for the year, less PAYE already paid and any allowable tax credits.
Second payment: The total estimated tax for the year, less PAYE already paid, any allowable tax credits and the first provisional tax payment.
Third payment: The total estimated tax for the year, less PAYE already paid, any allowable tax credits, and the amounts paid on the first and second provisional tax payments.
Penalties may be imposed by SARS for under-estimation of provisional tax.
Penalties are calculated and imposed upon assessment of the income tax return for the year of assessment.
Penalties are charged at 10% of the difference between estimated tax and assessed tax. Interest may also be charged.
As mentioned before, it is advised that you reach out to a registered tax practitioner to assist in the calculation of provisional tax, to avoid penalties and having large tax debt upon assessment of Income tax.
How is Provisional tax paid?
The easiest way to file and pay Provisional tax returns are via SARS e-filing.
If payment is not made via e-filing, provisional tax may be paid via internet banking. SARS is a pre-loaded beneficiary with all major banks. Be sure to indicate that it is Provisional tax that is being paid. It is also very important to quote the unique Payment Reference Number found on the Provisional tax return (IRP6) when loading the payment via online banking, so SARS may allocate the payment accordingly.
Lionheart Financial Services (Pty) Ltd are Professional Accountants accredited and affiliated with the South African Institute of Professional Accountants (SAIPA) as well as registered Tax Practitioners. Please feel free to contact us on (012)035 0414 or via email Info@lionheartfs.co.za if you require any assistance with the calculation/submission of your or your business’s Provisional Tax returns.