Provisional tax catches a lot of business owners off guard, because it isn't a separate tax at all — it's a way of paying your income tax in advance, during the year, rather than in one lump after year-end. Understanding whether it applies to you, and how the estimates work, saves you from a nasty penalty at assessment.
What provisional tax actually is
Provisional tax spreads your income tax liability across the tax year in instalments, based on your estimated taxable income, so you're not hit with the full bill in one go after year-end. The instalments are then set off against your final assessed tax when you file your annual return.
Who has to pay it
In general, you're a provisional taxpayer if you earn income that isn't already subject to PAYE — such as business profits, rental income or significant investment income. Companies are automatically provisional taxpayers. If you only earn a salary that already has PAYE deducted, you're usually not a provisional taxpayer. There are specific exclusions and thresholds for individuals, so it's worth checking your own position.
The two returns each year
Provisional taxpayers submit two compulsory IRP6 returns per tax year:
- The first, due about halfway through the tax year (around the end of August), on which you pay tax on half of your estimated taxable income for the year.
- The second, due at the end of the tax year (end of February), on which you pay the balance of the tax on your full estimated taxable income for the year.
There's also an optional third 'top-up' payment after year-end, which lets you make up any shortfall and limit the interest SARS charges on tax paid late.
Getting the estimate right
The whole system rests on your estimate of taxable income, and this is where businesses get caught. Estimate too low and SARS can levy an under-estimation penalty; ignore a return entirely and there are late-submission and late-payment penalties plus interest. The better your books are during the year, the more accurate your estimate — which is the real reason keeping your accounting up to date matters here, not just at year-end.
How to stay on top of it
Two dates a year sounds easy to manage, but they sneak up precisely because they're infrequent. Keeping your management accounts current means that when an IRP6 is due, you can base your estimate on real figures rather than a guess — and you'll have the cash-flow visibility to plan for the payment rather than scramble for it.
This guide is general information to help you get oriented — it isn't formal tax or legal advice. Thresholds, rates and deadlines change, so confirm the current figures on the SARS website or with your accountant before you act.