Never fear when provisional tax is near

It is August which means it is time to pay provisional tax for the first half of the financial year. Provisional tax is a mechanism to split your tax liability into two, and pay half in August, and the other half in February.

For Individuals

If you are earning extra income over and above a salary you need to register for provisional tax. Extra income can be any of the following: rental income from a property, interest from a bank or financial institution or perhaps you earn both a salary and an annuity or pension income.

Calculating your provisional tax liability sounds daunting, but it is quite simple.

First you start off by determining or estimating your taxable income for the first half of the financial year.  Once you have the amount for the six months, double the amount and declare that on the provisional tax form called an IRP6.  The form will automatically work out the income tax on that income for the year and then divide it by two to get the amount payable for half the year.  The IRP6 form will also contain the PAYE that you have paid on your salary for half the year and it will be deducted from the amount payable.

Therefore, for August 2018, you will submit an IRP6 for 201901 in other words the first provisional tax payment for the 2019 financial year (March 2018 to August 2018).

For the second provisional tax payment, which will be at the end of February 2019, you will complete an IRP6 for 201902. This is the second provisional tax payment for the 2019 financial year (September 2018 to February 2019).

The amount you need to pay is worked out automatically on the SARS form when you fill in your estimated taxable income for the full year.  It works out the tax that needs to be paid for the second half of the financial year less the PAYE deducted from your salary every month and less the first provisional tax payment made.

 

Now you ask the question, after all this do I still need to complete a tax form like everyone else?  The answer is yes you do.  The tax return that you fill in during tax season is basically a reconciliation of all your income and deductions for the full financial year.  You will then be able to see whether you have paid enough tax (by paying provisional tax in advance).  If you paid too much tax you will get a refund and if you paid too little you will have to pay in.

 

 

For Companies

All companies are registered for provisional tax and need to pay tax in advance for the financial year.

Companies must pay provisional tax on the estimated profit for the relevant 6-month period:

In August 2018 companies will pay provisional tax of 28% on their estimated profit for the period March 2018 to August 2018.

The IRP6 form requires you to declare your turnover for the period and then declare your estimated taxable income (profit) for the year.  The form will automatically calculate the 28% payable for six months.

In February 2019, provisional tax need to be paid for the period September 2018 to February 2019. This is calculated as 28% on the full year’s profit (the actual profit up to January 2019 plus the estimated profit for February) less the provisional tax already paid in August.

Paying your provisional tax is a straightforward process. If you are still unsure or if you have any questions or you think you need help in preparing your IRP6, you can always contact us and we will be more than happy to answer your questions or assist you.