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Understanding provisional tax obligations and compliance
WHAT IS PROVISIONAL TAX AND HOW DO I TAKE CARE OF IT?
Provisional tax is a SARS bi-annual tax collection that refers to the paying of tax liabilities in advance. It is not separate from one’s income tax and is paid by individuals who earn income outside of South African registered employers. Only certain individuals are provisional taxpayers, and this is determined as follows:
Any individual who receives an income other than their salary
An employee who receives a salary from an employer who is not registered for employees’ tax
Any company
Any person classified as a provisional taxpayer by SARS
By allowing provisional taxpayers to pay in advance, the taxpayer does not find themselves with a large tax debt at the end of the tax year, or during assessment. With provisional tax, tax liabilities can be spread across the year, and taxpayers can pay in advance (at least two amounts).
All companies in South Africa automatically fall into the category of provisional taxpayers. Amounts due are calculated by taking the estimated taxable income into account for the specific year of assessment.
MMS Cloud Accounting can assist your company in handling your provisional tax administration to ensure total taxation compliance for your business. Our standard accounting packages include taxation services to address submission requirements as well as client services that remind you of upcoming taxation deadlines.
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STRATEGISING PROVISIONAL TAX
As a provisional taxpayer, we advise calculating the highest possible tax you might owe on your monthly earnings and depositing this estimated total into a separate savings account each month.
This approach ensures that you do not inadvertently spend “tax funds”, helping you avoid cashflow issues when it is time to pay provisional taxes. Should you overestimate your payment, you can enjoy a surplus once the final provisional tax payment is made.
Frequently asked questions
How do I calculate my provisional tax?
The amount payable by the provisional taxpayer is determined as follows:
1st period:
- Half of the total estimated annual tax;
- Minus employees’ tax paid for these 6 months (if an individual);
- Minus any allowable foreign tax credits for these 6 months.
2nd period:
- The total estimated annual tax;
- Minus the employees’ taxes paid for the entire year (if an individual);
- Minus any allowable foreign tax credits for the entire year;
- Minus the amount paid during the first provisional period.
The 3rd period is optional and applicable in certain cases only as a form of top-up, and is calculated as follows:
- The total tax estimated payable for the year;
- Minus the employees’ tax paid (if an individual);
- Minus any allowable foreign tax credits;
- Minus the amount paid for the 1st and 2nd provisional tax periods.
How should provisional tax be paid?
The current process for provisional tax payments includes using eFiling, SARS’s online submission portal. Taxpayers are required to register on this platform in order to request their necessary IRP6 return. Submissions and payments are all conducted online.
MMS Cloud Accounting can assist with provisional tax returns, from eFiling registration to submission, to provide complete accuracy throughout the process. We also ensure that all deadlines are met to maintain compliance.
When should these payments be made?
The first payment should be fulfilled within six months of the start of the tax year. To make this payment, years’ of assessment that begin in March have until the 31st of August, or the last business day of the month of August.
The second payment should be made by the last working day of February, within the same assessment year.
The third payment is applicable only if there is a shortfall in the taxation paid to date, for the assessment year in questions. This can be made by companies with the year end on the last day of February or any other individual or business by the last business day of September.
In other instances, this third payment can be made within six months of the end of the year of assessment.
What documents are required for these returns?
Provisional taxpayers are advised to keep the following supporting documents ready after their first return, should SARS request them:
- An income statement for the first six months of the year of assessment.
- Payslips for this six month period.
- A schedule outlining deductible expenses for the period.
- Statements from relevant financial institutions outlining investments and income therefrom.
- Invoices for claimed expenses.
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THE MMS CLOUD ACCOUNTING DIFFERENCE
According to SARS regulations, the first provisional tax payment should be made within 6 months of the start of the year of assessment. If you would like to make use of our professional tax services to ensure that you do not miss any of your payment deadlines, you are welcome to get in touch.