Must I Pay Provisional Tax?
Frequently Asked Questions about Provisional Tax

Author: Franchise Finder

It’s the beginning of yet another tax year and that’s enough to send most people scurrying for cover. But successful franchise business owners don’t shy away from grappling with provisional tax. Here, Franchise Finder lends franchise owners a helping hand.

What is provisional tax?

Provisional tax is a form of Pay as You Earn (PAYE) tax. Says the South African Revenue Service (SARS), provisional tax is not a separate tax but a mechanism whereby income tax can be paid during the year in which it’s earned. Provisional tax is designed to make life easier for those who earn irregular incomes, since payments can be made twice, or even three, times a year.

Who qualifies as a provisional tax payer?

• Companies, including franchise businesses
• People who earn an income which isn’t from a salary (such as self-employed consultants or freelancers)
• If you have been notified by the Commissioner that you are a provisional taxpayer.

If you receive an income which is not from a salary, you are only required to register as a provisional tax payer if you earn over the tax threshold for the year. Consult the SARS Tax Tables for further information.

How is provisional tax calculated?

Provisional tax payers must accurately estimate what their taxable income is for a tax year, before the completion of that tax year. Provisional tax is then paid at six monthly intervals, based on this estimated figure, and according to the tax scales. At the end of the tax year, provisional tax paid on estimated taxable income will be offset against actual taxable income for the year, and the taxpayer will either have to pay in the difference to SARS (if they’ve underpaid) or be reimbursed by SARS (if they’ve overpaid).

As a franchise operator, estimating my taxable income for the year can be tricky. What if my estimation proves to be inaccurate?

Previously, one could make an estimate based on one’s taxable income as moderated by the last tax assessment. This was known as the basic amount, and a penalty-free margin of error of 10 percent was allowed for underestimations based on this figure. Now, however, provisional taxpayers should be wary of underestimating their taxable income, for fear of incurring penalties.

Are there different categories of provisional taxpayer?

SARS has acknowledged that it can be difficult for small businesses, like some franchises, to accurately predict their taxable income for a year, and have introduced two tiers of provisional tax payers:

• Tier One: Provisional taxpayers with a current year taxable income up to R1 million. Taxpayers in this category can still base their estimates on the so-called basic amount, and SARS allows for a margin of error of 10 percent. Under-estimations will garner a penalty fee of 20 percent of the tax on the amount of the underestimate.
• Tier Two: Provisional taxpayers with a current year taxable income in excess of R1 million. Those that fall in this category are no longer allowed to base their estimations on the basic amount, and must project income more accurately. SARS allows for a 20 percent margin of error and, should there be an underestimation, will impose a penalty fee of 20 percent of the tax on the amount of the underestimate.

When are the provisional tax deadlines?

Says SARS, provisional tax allows tax payers to provide for their final tax liability by paying two amounts in the course of the year of assessment – six months after the beginning of the year of assessment (usually the end of August), and again at the end of that year (usually the end of February). In addition, SARS makes provision for a third voluntary payment during the year.

How do I submit my provisional tax return?

Provisional tax estimates and payments are made on an IRP6 form. IRP6 forms and payments can be submitted via e-filing, or by visiting your local SARS branch. For help with your provisional tax return, see A Comprehensive Guide to Your Provisional Tax Return and the e-filing Step-by-Step Guide to Your IRP6.

Where can I download an IRP6 form?

You need to request an IRP6 form from SARS. You can do this by registering for e-filing, visiting your local SARS branch office or by calling 0800 00 SARS (7277).

Author: Franchise Finder, Online Directory of Franchises and Business Opportunities in South Africa