Provisional tax is a way of paying your normal income tax in advance, in instalments, so the tax is spread across the year. It is not a separate tax. If you earn income that isn't taxed through PAYE, such as company profits, rental, freelance or business income, SARS collects tax on it during the year. You make two compulsory payments a year, each based on your own estimate, with a penalty if your February estimate is too low. This guide covers the deadlines, the calculation, the penalty rules and the mistakes to avoid.

How provisional tax works

Provisional tax is a way of paying your income tax and adds no new liability. You estimate your taxable income for the year, work out the tax on it, and pay it in instalments during the year. At assessment, your actual income tax is calculated on your ITR12 (individuals) or ITR14 (companies), and the provisional payments you've already made are credited against it. Overpay and you're refunded; underpay and you settle the balance — possibly with a penalty. The provisional returns themselves are filed on an IRP6.

2 + 1
Two compulsory payments, around end-August and end-February, plus an optional third around end-September to limit interest.

Who has to pay it

Every company is automatically a provisional taxpayer. Any individual who earns taxable income that doesn't come from a salary is one too: a business, a side trade, rental income, or investment income above the exclusion. If that's you, you're a provisional taxpayer whether or not SARS has written to tell you so, because your income creates the obligation. A salaried person who starts a side business becomes a provisional taxpayer from that point.

Provisional tax deadlines

  • First payment — end of August (six months into the tax year): pay at least half your estimated tax for the year.
  • Second payment — end of February (tax year-end): top up so you've paid your full estimated liability for the year.
  • Optional third — end of September: a voluntary top-up, after year-end, to stop interest building if you turned out to have underpaid.

Miss a provisional deadline and SARS charges a late-payment penalty and interest automatically. Put both dates in your calendar the day your tax year starts, with a reminder a fortnight earlier so you can set the cash aside.

The basic amount

For the first payment, and as a safety net for the second, SARS uses your basic amount , which is broadly your taxable income from your latest assessment. If that assessment is more than about eighteen months old by the time you file, the basic amount is escalated by a set percentage a year to bring it up to date. The basic amount is one of the safe-harbours. If you pay against it correctly, you're protected from the under-estimation penalty even if your actual income comes in higher. It also sets the minimum for your first payment.

Working out the first payment

First payment for a R400,000-profit company

A company expects R400,000 taxable profit for the year. Company tax at 27% is R108,000. The first provisional payment, due end-August, is at least half of that, R54,000, provided the estimate is at least the basic amount from the last assessment. Pay that by the deadline and the first payment is complete. The second payment in February tops up to the full year's liability once the estimate is refined on the latest figures.

The second payment and the under-estimation penalty

The penalty applies to the February estimate. Under-estimate your taxable income and SARS levies a 20% under-estimation penalty on the shortfall, unless you land inside a safe-harbour. The safe-harbours, broadly, are:

  • If your taxable income is R1 million or less: you're safe if your estimate is at least 90% of your actual taxable income, or at least 100% of the basic amount from your last assessment.
  • If your taxable income is above R1 million: the basic-amount safety net falls away — you need your estimate to be at least 80% of your actual taxable income.

The penalty on an under-estimate

A company's actual taxable income turns out to be R1.2 million. That is over R1m, so the 80% rule applies. Tax on 80% of R1.2m (R960,000) at 27% is R259,200. The company's February estimate was only R600,000, so its second-payment provisional tax was based on R162,000. The shortfall SARS penalises is R259,200 − R162,000 = R97,200, and the 20% penalty is R19,440, on top of the tax still owed. An estimate of at least 80% of the actual figure would have avoided the penalty.

Base the February estimate on up-to-date books for the year.

The late-payment penalty

The late-payment penalty is separate from the under-estimation penalty, and you can be charged both. If you pay a provisional amount late, even the right amount a day after the deadline, SARS adds a 10% late-payment penalty on that payment, plus interest for the period it's outstanding. Paying late costs 10% of the payment, and estimating too low costs 20% of the shortfall. An accurate estimate paid by the deadline avoids both.

Mistakes to avoid

  • Not realising they're provisional at all. A salaried person starts freelancing or renting out a flat, earns non-salary income, and never registers. The first assessment then brings backdated penalties.
  • Low-balling the February estimate to ease cash flow, then paying the 20% under-estimation penalty on the shortfall.
  • Paying the right amount a day late and paying the 10% late-payment penalty.
  • Forgetting the annual return. Provisional tax is payment in advance. The ITR12 or ITR14 still has to be filed, and the final balance is settled there.
  • Estimating on gut feel. Without current books, the estimate is a guess, and a low guess leads to the penalty.
  • Ignoring the optional September top-up when they know they've underpaid, so interest keeps building.

Steps for each tax year

  1. Confirm you're a provisional taxpayer. Every company is, and individuals are once they earn taxable non-salary income
  2. Register for provisional tax on SARS eFiling if you're not already registered
  3. Keep your books current through the year so each estimate rests on current figures
  4. File the first IRP6 and pay at least half your estimated tax by end-August (and at least the basic amount)
  5. File the second IRP6 and top up to your full estimated liability by end-February, inside the safe-harbour (90% of actual or 100% of the basic amount under R1m; 80% of actual over R1m)
  6. Use the optional third payment around end-September if you underpaid, to stop interest building
  7. File your ITR12 or ITR14 annual return and settle any balance at assessment

How we handle it for clients

We keep your books current through the year, so each estimate uses current figures. We calculate both payments to land inside the safe-harbours, file the IRP6 returns, and tell you what to pay and when, early enough for you to set the cash aside.

A worked example for an individual

Individuals with income outside PAYE are provisional taxpayers too.

The salaried employee with a side business

You earn a salary taxed through PAYE, and on the side you run a consulting business that clears R300,000 profit this year. That R300,000 isn't taxed at source, so you're a provisional taxpayer on it. You estimate the tax on your total income — salary plus side business — subtract the PAYE already deducted on your salary, and pay the difference across the two provisional dates. If you don't register, the first assessment brings the tax and backdated penalties and interest. The side income makes you provisional, even though most of your income runs through PAYE.

Registering as a provisional taxpayer

Companies are registered automatically. As an individual, you register on SARS eFiling by activating provisional tax on your profile so the IRP6 returns become available to you. Register as soon as you start earning non-salary income. SARS works back from your actual income at assessment, so penalties for missed payments arrive together if you register late.

If you need provisional tax calculated and filed, or you should have been paying it, talk to us. We'll get you registered, work out your position and file both payments each year.