Provisional tax isn't an extra tax. It is a way of paying your income tax in instalments during the year, rather than in one large amount after your assessment. If you are a provisional taxpayer, understanding how and when to pay can save you real money in penalties and interest.
Who is a provisional taxpayer?
You are generally a provisional taxpayer if you earn income that isn't covered by PAYE. That includes:
- Companies (all companies are provisional taxpayers)
- Sole proprietors, freelancers and consultants
- Individuals who earn rental, interest or other investment income above SARS's threshold
- Employees who earn additional income, such as commission or a side business, that isn't taxed at source
When are the payments due?
There are normally two compulsory payments and one optional top-up each tax year. For individuals and other taxpayers with a February year-end:
- First payment: by the end of August, based on an estimate of taxable income for the full year.
- Second payment: by the end of February, with an updated estimate for the year.
- Third (optional) payment: a top-up after year-end if your actual income turns out higher than estimated.
Companies pay six months into their financial year, at year-end, and may make the optional top-up after year-end. Your dates therefore depend on your company's year-end.
Getting your estimate right
SARS expects a reasonable estimate of your taxable income. If your estimate is too low, SARS can charge a penalty on the shortfall, plus interest on late or underpaid amounts. Practical ways to get it right:
- Use up-to-date management accounts, not guesses from last year.
- Account for seasonal income and once-off sales.
- Revisit the estimate at the second payment, when you have more information.
How to stay on top of it
Keep your books current throughout the year so that your estimate is based on real numbers. Diarise the due dates a few weeks ahead, and set aside cash every month so the payment doesn't catch you out.
Rules and thresholds change, so always confirm the current requirements on the SARS website or with your accountant before submitting.