The intricacies behind filing Provisional tax in South Africa

CH Consulting |
3 July 2024

Although it is not a separate tax from income tax, provisional tax is a system designed to help taxpayers spread their tax payments over the tax year. It is primarily applicable to individuals that earn more than a monthly salary subject to PAYE (Pay As You Earn) deductions. Here’s a detailed overview of provisional tax:

WHO NEEDS TO PAY PROVISIONAL TAX?

Individuals:

Individuals who earn income from sources other than a salary, such as rental income, investment income, or income from a sole proprietorship. If an individual has multiple income streams, including freelancers and contractors, or Crypto trading, they are also eligible for Provisional tax.
Generally, if your non-salary income exceeds R30,000 per year, you are required to register as a provisional taxpayer and file the applicable returns.

Companies and Trusts:

Companies and trusts, as listed by SARS, are required to file and pay provisional tax.

THE PAYMENT SCHEDULE

Provisional tax is paid in two main installments during the tax year, with an optional third payment

First Payment (August):

This is due six months into the tax year (end of August). The payment is based on half of the total estimated tax payable for the tax year.

Second Payment (February):

The second payment is due at the end of the tax year (end of February). The payment is based on the remaining tax payable after the first payment is deducted from the total estimated tax payable for the tax year.

Third (Optional) Payment (September):

The optional payment is due six months after the end of the tax year (end of September). This is a voluntary top-up payment if the taxpayer’s final tax liability exceeds the amounts already paid in the first two payments.

For example, if one is analysing the 2025 Tax year, starting March 2024 – February 2025, the first payment will be required at the end of August 2024; the second payment is required by the end of February 2025; and the optional top-up payment expires at the end of September 2025.

CALCULATING PROVISIONAL TAX

Provisional tax is based on an estimate of the taxpayer’s income for the year. Here’s how to calculate it:

  • Estimate Your Taxable Income: Calculate an estimate of your taxable income for the tax year.
  • Apply the Tax Rates: Apply the applicable income tax rate to your estimated taxable income to determine the amount of provisional tax owed.
  • Deduct tax already paid, rebates and credits: Deduct employee tax, applicable rebates and applicable credits. from tax calculated on estimated taxable income to obtain the total amount tax payable.

PURPOSE OF PROVISIONAL TAX

The purpose of provisional tax is two-fold. The first is to assist the taxpayer with cash flow. The provisional tax system is there to spread the tax payment throughout the tax year, rather than having one big payment at the end of the tax year. The second benefit focuses around compliance. Having 2 submission dates ensures that SARS receives tax payments on a more regular basis, improving compliance and reducing the risk of underpayment / underdeclaration and the penalties and interest that will follow for the taxpayer.

FILING REQUIREMENTS

Provisional taxpayers must complete and submit IRP6 forms twice a year, detailing their estimated income and tax payments. At the end of the tax year, a final income tax return (ITR12 for individuals, ITR14 for companies and ITR12T for trusts) must be submitted, reconciling provisional tax payments with the actual tax liability. By adhering to these guidelines, provisional taxpayers can avoid penalties and ensure they remain compliant with SARS’ tax regulations.

THE DIFFERENCE BETWEEN AN IRP6 AND IRP5?

In South Africa, IRP6 and IRP5 are two distinct types of tax forms used for different purposes in the tax reporting system. Here are the key differences between the two:

PURPOSE

IRP6: The IRP6 form is used for provisional tax returns. It is intended for provisional taxpayers, which include individuals with additional income sources (like rental or investment income).

vs

IRP5: The IRP5 form is an employee tax certificate issued by employers to their employees. It details the employee’s income, deductions, and PAYE tax withheld for the tax year.

WHO USES IT

IRP6: Individuals who earn income from sources other than a regular salary. As well as all companies and trusts.

vs

IRP5: Employers issue the IRP5 form to their employees. Employees use the IRP5 form to complete their annual income tax returns.

FILING FREQUENCY

IRP6: Provisional taxpayers file the IRP6 form twice a year. The first submission is due six months into the tax year (August), and the second is due at the end of the tax year (February). An optional third payment can be made six months after the end of the tax year (September).

vs

IRP5: The IRP5 form is issued annually by the employer after the end of the tax year (February).

 

CONTENTS

IRP6: The IRP6 form requires an estimate of taxable income for the tax year and provisional tax payable is based on this estimate.

vs

IRP5: The IRP5 form includes detailed information about an employee’s income (salary, bonuses, fringe benefits etc), deductions (pension contributions, medical aid etc), and the PAYE tax that has been deducted and paid over to SARS on behalf of the employee.

 

OBJECTIVE

IRP6: To help taxpayers manage their tax liability by making payments throughout the year, rather than in a single lump sum at year-end.

vs

IRP5: To provide employees with a comprehensive summary of their taxable income and tax deductions, which they use to file their annual tax returns.

 

Takeaways

It’s not that a taxpayer is either an income tax taxpayer, or a provisional tax taxpayer. Often, an individual would need to submit both. If any individual, receiving a salary to which PAYE is withheld, also receives income from a second source (i.e. rental income, or sole proprietor income), they will need to file provisional tax returns on top of their annual income tax return. Regardless, it’s best to contact a tax professional to assist with your filing, to ensure compliance and to avoid paying any unnecessary penalties and interest.

You are welcome to book a call if you want us to consult on your specific circumstances or complete your calculation and return on your behalf.

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