Just like that – we’re through the first month of 2019. SARS leaves us no choice but to get back into the full swing of things.
All companies with a February year-end need to submit their second provisional tax returns at the end of this month.
In this post, we summarise what you need to know when it comes to filing your company’s provisional tax return.
WHAT YOU NEED TO KNOW ABOUT PROVISIONAL TAX
1 | What is provisional tax?
Provisional tax is not a separate tax from normal income tax. In other words, it’s merely a method of spreading your company’s total income tax liability. You do this by making 2-3 provisional tax payments in advance.
For example:
- Companies need to submit their income tax returns 12 months after year-end.
- Income tax return for the year ending 28 Feb 2018 = Due 28 Feb 2019.
- By then, your provisional tax payments should’ve covered your final income tax liability.
- No additional tax payment should be required if the calculations were done correctly.
2 | Who needs to pay provisional tax?
- All companies
- Trusts
- Natural persons (individuals) earning income other than employment income:
- Interest, dividends or income from the letting of fixed property above R30 000; or
- Income from carrying on a business (sole proprietors); or
- Any other income, apart from carrying on a business, that exceeds the tax threshold for individuals.
3 | Do I need to register for provisional tax?
There’s no official registration process for provisional tax specifically. When you register your business with CIPC – you automatically receive an income tax number. Then you’ll be able to submit provisional tax returns via e-filing. Consequently, you don’t have a separate number for provisional tax.
4 | When and how much do I pay?
You will calculate your company’s tax liability subject to the applicable tax rates to your business. For example, if your business qualifies as a small business corporation – you’ll be taxed according to those applicable tax tables. Alternatively, you will probably be taxed at the normal flat rate of 28% on your company’s net profits.
The provisional tax amount that you will pay, is merely a part-payment of this calculated tax liability. Companies with a February year-end will pay according to the table below:
| 1ST Payment | 2ND Payment | 3RD Payment |
| Compulsory | Compulsory | Voluntary (Top-up) |
| 6 months into year | 12 months into year | 6 months after year-end |
| 31 August | 28 February | 31 August |
| 50% x Total calculated tax*. | Total calculated tax – 1st provisional tax payment | Total calculated tax – (1st + 2nd provisional tax payments) |
*Taxpayers may choose to use a basic amount as an estimate of their taxable income:
- The basic amount is the taxable income assessed by SARS in your last submitted income tax return (for a previous tax year).
- Generally, it’s the minimum estimate that you may use to calculate your tax liability.
- Taxpayers should increase this basic amount with 8% if the estimate is made more than 18 months after the last assessed tax year.
- Using the basic amount as an estimate of taxable income can be risky: Keep in mind that there are harsh penalties payable, should your estimate be less than 80% of final (actual) taxable income.
You can view a calculation example or download the complete guide on provisional tax from the SARS website.
SOME IMPORTANT THINGS TO KEEP IN MIND
Planning for better cash flow, probably made it to the top of your new year’s resolution list. From our side, we’ve seen time and again how provisional tax plays a huge role in achieving this. The impact is underrated.
For this reason, it’s crucial to keep yourself and your accountant accountable during the process. Accountants need to gather as much info possible to estimate your company’s tax liability accurately. On top of that, you don’t want to end up paying huge penalties on the under-estimation of provisional tax:
1 | Make sure your accounting is up to date:
Check if your annual financial statements and monthly accounting is up to date. This is important because accountants use these figures to calculate your tax liability.
2 | Be involved:
Ask your accountant for a breakdown of the provisional tax figure and make sure you understand the calculation. Especially when the amount payable is calculated at R0.
3 | Consider once-off transactions:
Make sure you communicate any big expected transactions that may occur further down the road. For example: Future income expected from big contracts towards the end of the year.
A LAST THOUGHT ON TEAMWORK
We can’t emphasise the importance of a joint effort between accountants and clients enough. This should not only apply to provisional tax. It should be a general strategy when it comes to your finances.
To sum up, business owners who take control of their finances lead the entities that flourish. They are informed and demand accurate financial records to support every business decision.
They are the successful entrepreneurs that will enjoy the sweet fruits of business growth in 2019.