1. Estimate your taxable income for the whole tax year
Remember that both your first and second provisional return (IRP6) must reflect an estimate of your taxable income for the full 12 months of the tax year. There is often a misconception that the first provisional return should reflect an estimate of taxable earnings for the first 6 months of the year only – this is incorrect. You must always enter the estimate for 12 months and for the first provisional return which is due in August, the IRP6 will halve the tax due so that you only pay tax for the first 6 months of the tax year.
2. Don’t offset losses – SARS may not allow this
If you run a business or rental property, which is running at a loss, don’t offset this loss against other taxable income you may have when calculating your estimated taxable income for your provisional return. This is because SARS may opt to ‘ring-fence’ the loss and therefore not allow it to be deducted from current income, so it’s always best to err on the side of caution and assume this is the route that SARS will follow.
3. If you receive employment income, but don’t pay PAYE, you are a provisional taxpayer
If you are employed but your employer doesn’t deduct PAYE from your salary (and you earn above the tax threshold which is currently R83 100 for under 65s) you must register as a provisional taxpayer and pay tax bi-annually on your salary. An example where this may happen is if you work for a foreign employer who is not registered with SARS. Many taxpayers in this case simply declare their foreign salary annually on their tax return – however, if you haven’t paid provisional tax during the year, SARS will penalise you!
4. Under-estimation penalty
It may be challenging to estimate your annual taxable income when you make the first payment, which is only six months into the year. Fortunately this one doesn’t attract a penalty if it is too low, but you need to ensure your second estimate is reasonably accurate to avoid an under-estimation penalty.
The penalty amount is different for taxpayers whose taxable income is more than R1m than those earning less than R1m.
If your taxable income for the year is R1m or less, SARS will impose an under-estimation penalty if your estimate in your second provisional return turns out to be less than 90% of your actual annual taxable income on your ITR12, and is also less than your 'basic' amount.
The penalty amount will be calculated at 20% of the difference between the normal tax payable on your estimate and the lesser of:
If your taxable income is more than R1m, you need to ensure that your estimate of taxable income on your second provisional return is no less than 80% of your actual taxable income. SARS doesn’t consider the 'basic' amount when taxpayer's taxable income is more than R1m.
The penalty will be calculated at 20% of the difference between the normal tax payable for your estimate and tax calculated on 80% your actual taxable income.
5. Late payments
SARS is very quick to levy a late payment penalty equal to 10% of the total tax payable even if you are only a day late! Not only that, SARS will lump on interest at their prescribed rate (currently 7% per annum) as well. Be sure to check the deadline on their website for both the August and February payment and set an alert on your calendar so you never pay late.
6. Late submission
If you file your IRP6 more than four months after the deadline, SARS considers you to have submitted a 'nil' return (i.e. taxable income is equal to zero). Unless your actual taxable income is, in fact, zero, this will result in the 20% under-estimation penalty being imposed.
7. Submit a nil return if applicable
Even if you owe no tax but are a provisional taxpayer, you should still submit a provisional (nil) return to ensure an unbroken filing history with SARS.
8. Make a third ‘top-up’ payment to avoid interest
If you realise after the tax year end that you have underpaid your tax for the preceding year, it would be wise to make a voluntary third payment by the end of September. Many people don’t do this and opt to rather pay the balance due a few months later when they submit their tax return, but then receive a nasty surprise when they are charged interest on underpaid provisional tax on their tax assessment.
9. Don’t overlook investment income and capital gains
If you own investments, it may be worth requesting a provisional statement from the financial institution in February to ensure you include your interest and capital gains in your year-end estimate of taxable income. Too often, taxpayers do not consider their capital gains and/or interest until they declare them in their annual tax return and by then, it is usually too late to avoid the under-estimation penalty on their second provisional payment.
10. Keep supporting calculations
SARS may ask you to justify your estimate and can increase it if they are dissatisfied with the amount. The increase of the estimate is not subject to an objection or appeal.
11. Last day of February falls on a weekend or public holiday
If the last day for submission falls on a public holiday or weekend, the submission must be made on the last working day prior to the public holiday or weekend. The second provisional return for 2021 is due Friday, 26 February.