Provisional tax is a system offered by SARS which allows certain taxpayers to pay their income tax liability in installments, instead of in a single payment. This system is largely aimed at individuals or entities not having their income subject to regular PAYE deductions. For example, freelancers, business owners, or individuals earning income from rentals.
Who is Eligible For Provisional Tax?
Not everyone is required to file a return for provisional tax. You qualify when you receive income which is not in the form of fixed employment. This can be income from contracting, an investment or a small business. Salary earners and employees receiving PAYE don’t need to file this return, unless there are other income streams like rentals or dividends.
Forecasting Provisional Tax Payments
For every tax year, provisional tax is paid in 2 installments and a 3rd optional payment is made to to correct any underestimation. SARS expects you to declare 90% of the final tax due during the year for accuracy. Payments are made using projected taxable income, total income and deductions, for the year, and are divided to make payment easier. The table below summarizes important information for easy access.
Filing your SARS provisional tax return is relatively easy, as long as you follow these steps:
- If you haven’t done so, register for eFiling on the SARS website.
- Complete Form IRP6 and make an estimate of your annual taxable income, excluding income from regular employment.
- Submit the IRP6 form for the first period (which is typically in August) and make the required payment.
- Do the same for the second period in February.
- If your estimates were too low, you may make a third payment before the final assessment.
Crucial Dates and Risks
If you fail to meet the SARS provisional tax deadlines, you will be subject to payment of penalties and interest. The first payment is due in August and the second in February. SARS applies penalties when there is an underestimation of tax due or the return is late. To prevent unnecessary costs, taxpayers should keep good records, apply the SARS calculator, or work with a tax advisor.
Advice for Effortless Filing
File your return as soon as you are able to, and make conservative income estimates by taking all the possible deductions and filing for the earliest date. Use the official guides and Frequently Asked Questions on the SARS website as your resources before submission. Keep your proof of payment and submission to protect yourself if SARS questions any details.
Frequently Asked Questions
Q1. Who doesn’t have to file a provisional tax return?
Employees earning only a regular salary not supplemented by other income streams are exempt.
Q2. What if my estimate is too low?
SARS allows a third payment to correct underestimation, avoiding most penalties.
Q3. Can I file manually?
eFiling is compulsory for most taxpayers, but exceptions exist for those without internet access.
