Audit & Accounting » The Complete Guide To Provisional Tax

The Complete Guide To Provisional Tax

Let’s dig into the details of provisional tax!

Provisional tax season is fast approaching. It’s time to sit down with your accountant and do the necessary calculations.

What is provisional tax?

Provisional tax is not a separate tax from income tax. It is designed to help taxpayers settle their income tax in advance (think of it as a pre-payment) to ensure that taxpayers don’t get saddled with a large tax debt on assessment. It is a way for SARS to keep a constant flow of income tax coming in.

Who are provisional taxpayers?

In essence any person who receives added income over and above their salary is a provisional taxpayer. Most salary earners are not-provisional taxpayers because they don’t have other sources of income. Provisional taxpayers include:

  1. Business owners (including a limited company or closed corporation)
  2. Freelancers, independent contractors or those running a business in their own name;
  3. Anyone who receives income in the form of interest, dividends, foreign dividends, rental income and any payment (unless the total doesn’t exceed R30,000 for the year).

Who is exempt from provisional tax?

If you’re receiving exempt income, as per the below you’re not a provisional taxpayer:

  • receiving interest of less than R23 800 if you are under 65
  • receiving interest of less than R34 500 if you are 65 and older
  • receiving an exempt amount from a tax free savings account

In addition, if your taxable income does not exceed R30000 or is below the income threshold you do not have to register for provisional tax. See taxable income thresholds below:

  • R87 300 if you were under the age of 65 in the March 2021 to February 2022 tax year;
  • R135 150 if you were 65 or older but not over the age of 75 in the March 2021 to February 2022 tax year;
  • R151 100 if you were 75 years or older in the March 2021 to February 2022 tax year.

When do we pay provisional tax?

For all individual provisional taxpayers and companies, the first provisional tax return for the current year (half of the total estimated tax for the full year) is due before the end of August.

The second tax return is due by the end of February, it is the total estimated tax for the full year less the amount paid for the first provisional period, for companies less employees’ tax.

In addition, a third payment can be made in September (or when filing an income tax return) as the payments are based on estimates.

How many provisional tax payments are there?

Provisional tax payments are separated into two compulsory payments and one non-compulsory third payment. The first payment is due 6 months after the start of the financial year, the second one is due before the end of the financial year.

The third is a non-compulsory payment is due 6 months after year end for companies and 7 months after year end for individuals and companies with February year ends. The third payment is only a prevention of interest being calculated on tax due that was not paid during the first two provisional tax payments.

Staying on top of provisional tax.

We can’t emphasize enough the importance of businesses capturing their accounting data regularly, and all taxpayers keeping exact and careful track of their actual income and expenses.

Keeping accurate records is of particular importance because SARS can review your information and calculations if they don’t agree with you and if you’ve got it wrong you will incur interest and penalties.

For those who do not register to pay provisional tax they can be held liable for penalties on the outstanding tax and on the outstanding returns.

Need an accountant to assist you?

Our experienced at Exceed are standing by to help your business get ready for tax season. Get in touch now.