What is provisional tax?
When people hear “provisional tax,” they often think it’s an extra tax. Good news — it’s not. It’s simply a way of paying your normal income tax in advance, in instalments, rather than in one lump sum after the tax year.
How it works
Instead of waiting until your annual assessment, provisional taxpayers estimate their taxable income for the year and pay it off in two main instalments:
- First payment — halfway through the tax year (end of August for most individuals).
- Second payment — at the end of the tax year (end of February).
- An optional third (top-up) payment can be made a few months later to settle any shortfall before interest builds up.
When you file your annual income tax return, these payments are credited against your final tax bill. If you’ve paid too much, you get a refund; too little, and you settle the difference.
Who needs to pay it?
You’re generally a provisional taxpayer if you earn income that isn’t subject to PAYE (employees’ tax) — for example:
- Business or freelance income
- Rental income
- Significant investment income
- Director or shareholder income outside of a regular salary
If all your income is a salary with PAYE deducted, you usually don’t need to worry about provisional tax.
Watch the penalties
This is where provisional tax catches people out. SARS charges penalties and interest if your estimate is too low, or if you pay late. The second payment in particular needs to be a reasonably accurate estimate of your full-year income — under-estimate it and an under-estimation penalty can follow.
Keep it simple
The key is a realistic estimate and paying on time. That’s far easier when your books are up to date and someone is watching the SARS calendar for you.
We handle provisional tax estimates and submissions for our clients, so the deadlines are met and the estimates are sound. Get in touch if you’d like us to take it off your plate.
This article is general information, not tax advice.