So, who has to be a provisional taxpayer?
- Most companies unless they are specifically excluded, e.g. Public Benefit Organisations
- An individual taxpayer who earns income, other than salary, e.g. rental, interest, capital gains, income as a sole proprietor, subject to the exceptions as set out below
- An individual taxpayer who is notified by the SARS Commissioner that he/she is a provisional taxpayer
Individual taxpayers will not, however, need to be a provisional taxpayer if:
- Taxable income for the year is less than R75,000 if under 65 years of age, R116,150 if under 75 years of age and R129,850 if over 75 years of age
- Interest income for the year is less than R23,800 if under 65 years of age or R34,500 if over
- 65 years of age
- Capital gains are less than R40,000 per annum
One misconception amongst taxpayers is that provisional tax is a separate tax. Provisional tax is calculated using the same rates as those used by employers to deduct PAYE. Provisional tax is an advance payment of a taxpayer’s normal tax liability and the first period payment is paid at the end of August and the second period payment at the end of February each year. There is also a possible third period payment, if not enough tax was paid in the first and second periods, and this payment is due to SARS by 30 September each year. If, however, a company has a year end other than that of February, their first and second period payments will be payable six months after the start of their financial year and at the end of their financial year respectively. For example, a company with a December year end will pay their first period tax on 30 June and their second period tax on 31 December each year.
Provisional tax payments are calculated using a taxpayer’s last assessed income as a base and are prepared on an IRP6 return which is then submitted to SARS. If your income has decreased since the last assessed income, you can amend the IRP6 return but have to be within 90% of your actual taxable income for that year if your taxable income is under R1 million or within 80% of your actual taxable income if your taxable income is over R1 million to avoid penalties.
SARS now also require all provisional taxpayers who earn taxable income in excess of R1 million to prepare an accurate second period provisional tax payment which may not differ by more than 80% of your actual taxable income once your tax return has been finalised. If you underestimate your provisional tax by more than 20% for the second period payment, SARS can levy a 20% penalty for underestimation of provisional tax.
The failure to register as a provisional taxpayer or to not pay provisional tax by the due date can result in very costly penalties. If you therefore have any doubt about whether you should be a provisional taxpayer or not, please contact us for a consultation.