Provisional Tax

What is provisional tax?

Provisional tax is not a special type of tax, but rather a payment mechanism where provisional taxpayers pay tax to SARS twice (or optionally three times) per year. This is because they don’t pay tax monthly via PAYE, like salaried employees do.

Provisional tax is paid by people who earn income other than a salary / traditional remuneration paid by an employer.

Am I a provisional taxpayer?

Find out if you are a Provisional taxpayer by clicking here 

If you earn non-salary income, for example rental income from a property, interest income from investments or other income from a trade or small business you run, you may be a provisional taxpayer - even if you ALSO earn a salary.

Some exceptions and thresholds do apply though:

If you earn income from running your own business and your total taxable income is above the tax threshold (2021: under 65 years, R83 100) then you will be a provisional taxpayer.

If you do not earn income from running your own business, but your total taxable income (earnings you will pay tax on) from interest, dividends and rental income is greater than R30 000 per year, and your total taxable income (earnings) is greater than the tax threshold (2021: under 65 years, R83 100) then you will be a provisional taxpayer.


Want an easy way to find out if you must register as a provisional taxpayer? Click here.

If you just earn a salary, then you are a regular taxpayer and don't have to worry about filing provisional tax returns. 

How do I register as a provisional taxpayer?

You can either apply as a provisional taxpayer when you first register for a tax number with SARS, or make the change on your SARS eFiling profile. Alternatively you can visit your nearest SARS branch in person or call the call centre on 0800 00 7277 (0800 00 SARS). 

How do I request the IRP6 form on SARS eFiling?

STEP 1: Login to your eFiling profile
Go to www.sarsefiling.co.za.
On the top right-hand corner you will see Register and Login.

Click Login and then type in your unique username and password - you will have decided on these when you first registered for eFiling.

Haven’t registered yet to eFile? Register your profile quickly at www.sarsefiling.co.za , using your tax number.

If a tax practitioner used to do this for you, they may have your eFiling login details. Alternatively, you can follow the instructions here to take back control of your profile from them.

Otherwise call SARS on 0800 00 7277 (0800 00 SARS), provide your ID number and some other security details and they will restore access to your eFiling.

Then click Login.

STEP 2: Generate the IRP6 return
Make sure that your name appears at the top under Taxpayer List, just in case you’ve logged onto someone else's SARS eFiling page by mistake!


If the title of the page is not INCOME TAX WORK PAGE, then click the RETURNS button in the menu at the top of the page.

On your income tax work page please select the prov tax page by clicking on the “Tax Payer List”:


In the menu on the left Returns Issued will open, showing Personal Income Tax (ITR12) and Provisional Tax (IRP6) - click Provisional Tax (IRP6).


The page title will now be PROVISIONAL TAX WORK PAGE and should show the IRP6 returns you are busy with.


If you have already created your IRP6 provisional tax return for the relevant year (it should be listed), jump to STEP 3 below.


Otherwise, select the year and relevant period (01 is the payment due at end of August and 02 is the second payment due at end of February) from the dropdown selector box on the right hand side of the page and click Request Return.

This tells SARS you would like to complete a return for that period, and they then generate it for you.
Important: You are filing a return for the tax year you are currently in, the one that ends in the coming month of February.

For example, if filing for period 01 in August of 2019, you will select 2020-01 (the 2020 tax year). 

STEP 3: Start work on your IRP6 return
Click on the relevant IRP6 and then complete the form with the help of the explanations below.

Alternatively, click here to get step-by-step help from TaxTim!

When you’re finished, click the File button to submit.
To make payment to SARS, click the Make Payment button and follow the instructions. 

Understanding each section of the IRP6 on eFiling

Particulars of Taxpayer - will already be completed. Check to ensure that these are still correct.

Period - ensure that the correct period is checked - first period / 01 is 31 August 2019 for the 2020 tax year.

Turnover - GROSS INCOME: total business income, royalties, dividends, interest and all other income, including employment income. Make sure you exclude all retirement lump sums.
(Important: In August, this is your ESTIMATED full amount that you expect to have made for the whole tax year at year end - not the amount you have earned to date over six months. In February this amount can be corrected based on your actual recorded income.)


Estimated taxable income - all your income minus the business-related expenses incurred in earning that income. Also subtract any pension fund, retirement annuity fund contributions, donation deductions and any exempt income.


Tax on estimated taxable income - this amount will automatically calculate.


Less: Rebates (for individuals only) - depending on your age, this amount will already appear on the return.


Less: Medical scheme fees (for individuals only) - this is a credit that goes toward providing relief if you or your employer pay for a private medical scheme. For the 2020 tax year this amounts to R310 per month for the first two members and R209 per month for every member after that. For the 2019 tax year this amount was also R310 per month for the first two members and R209 per month for every member thereafter. See our medical aid credits calculator.


Less: Additional medical expenses (for individuals only) - if your medical aid costs exceed 4x the above medical credit (3x if you are over 65) then a portion of your costs PLUS Out of Pocket Medical expenses can be claimed here as a credit. See here for how.


Tax for the full year - will automatically calculate based on the tax tables.


Tax for this period (6 months) - this amount will automatically calculate and then divide by two.


Less: Employees tax for this period (6 months) - add up all the employee tax you paid from all your pay slips. Only add the PAYE on your salary, don’t include PAYE on Lump Sums, UIF or SDL. 


Less: Foreign tax credits for this period (6 months) - if you earned money from overseas and any tax was withheld or paid, include that amount here.


Tax payable for this period - this amount will automatically calculate.

Add: Penalty on late payment - this amount will automatically calculate.

Add: Interest on late payment - this amount will automatically calculate.

Total Amount Payable - this amount will automatically calculate.

Historical information - this will already be completed, based on your previous year's income. 

 

When do I have to pay it?

One payment must be made by end of August (mid tax year)

A second payment must be made by end of February (end of tax year)

*Optional* third payment can be made at end of September (seven months after the tax year closes) ONLY if the amount paid in previous payments was insufficient. 


Provisional payments due for the 2019 tax year:

Regular taxpayers make their tax contributions to SARS monthly via PAYE, which is automatically deducted off their salaries. They submit one tax return every year for the end of February to describe their affairs - an ITR12. This takes place during tax season which for 2019 is 1 July – 4 December.

Since provisional taxpayers earn money from other sources, they have to complete an IRP6 AND make manual payments to SARS for the tax on that extra money they earned.

 

Why do we have to submit an IRP5?

SARS wants provisional taxpayers to have an even cash flow and avoid paying one large (potentially crippling) chunk of tax in February, so they ask that two (or optionally three) payments are made during the tax year (at the end of August and end of February), with an IRP6 required for each one.

The tax paid from the first and second payments is then taken off any tax owing at the end of tax season, and can be refunded by SARS if too much was paid. This will happen when you submit your ITR12 to SARS for assessment.

Provisional taxpayers also need to submit an ITR12 tax return (just like regular/non-provisional taxpayers), except the due date for this is 31 January the following year (11 months after the tax season closed). 

 

Provisional Tax Penalties

Provisional taxpayers – those who earn income from sources other than, or in addition to a regular salary or traditional payment from an employer – are all too familiar with the process of estimating their taxable income and submitting provisional tax returns. They don’t just do this once, but twice a year!

We know it’s a bit painful (although TaxTim makes it super easy) but it’s very necessary if you don't want to be lumped with penalties from SARS.

Let's take a look at the most common penalties provisional taxpayers face, plus how to avoid them.

1. Late Payment Penalty

Late payments have a penalty of 10% applied on the total tax amount payable, and will be levied for either or both payment periods (August and February). SARS will also add on interest at their prescribed rate - currently 10% per annum.

SARS is exceptionally quick to apply these fines - even if you're only a few days late - so be sure to mark these deadlines down in your calendar (or sign up to receive our email reminders), so that you never miss these dates of end August and end February.

2. Under-Estimation Penalty

A unique part of paying provisional tax is the need to estimate your annual taxable income. To prevent people from pulling these figures out of the air, or reporting lower numbers, SARS imposes hefty fines if you underestimate.

This penalty could be levied if your actual taxable income calculated in your final tax return (ITR12) is more than the estimated income submitted on your second provisional return (IRP6).

The penalty amount is different for taxpayers whose taxable income is more than R1 million compared to those earning less than R1 million. Let’s look at each in more detail.

 

Taxable Income of R1M or Less

If your taxable income for the year is R1 million or less, you're at risk for an under-estimation penalty if your estimate in your second provisional return is less than 90% of your actual annual taxable income on your ITR12, and is also less than your 'basic' amount. Your 'basic' amount is your taxable income on your most recent assessment.

The penalty amount will be calculated at 20% of the difference between the normal tax payable on your estimate and the lesser of:

  • Tax on 90% of your actual taxable income
  • Tax on your 'basic' amount

Here’s an example.

Thabo is a provisional taxpayer and he needs to submit his second provisional tax return for the 2018 year of assessment (March 2017 to 28 February 2018.)

His 'basic' amount per his 2017 Tax Assessment (ITA34) is R300 000. Because Thabo has recently gone overseas on holiday, his cash flow is a bit tight in February and he hasn't budgeted properly for the tax payment he’ll need to make. So, he thinks it would be a good idea to understate his taxable income a little so he can reduce his tax bill in February. He therefore completes and submits his second provisional return in February 2018 with a taxable income amount of R200 000.

In August 2018, Thabo completes his 2018 tax return (ITR12) and receives his Tax Assessment (ITA34) which puts his actual taxable income at R255 000 for the year.

His estimate of R200 000 was less than 90% of actual taxable income (90% x R255,000 = R229 500) and also less than his 'basic' of R300 000. Unfortunately, Thabo didn’t know the rules around provisional tax estimates, so by trying to reduce his tax burden in the short term, he's actually going to be penalised by SARS.

His penalty is calculated like this:

  • Tax on 90% of actual taxable income (R229 500) = R30 844
  • Tax on 'basic' (R300 000) = R49 347

The lesser amount of tax is R30 844, so SARS will use this amount in the penalty calculation.

Total tax paid (first plus second provisional tax payments) = R23 174 (Use our handy income tax calculator to work out your tax obligation)

Calculation of penalty = R30 844 – R23 174 = R7 670

Penalty amount = 20% of R7 670 = R1 534


Taxable Income Greater Than R1m

If your taxable income is more than R1 million, you must make sure that your estimate of taxable income on your second provisional return is no less than 80% of your actual taxable income. SARS don't consider the 'basic' amount when a taxpayer's taxable income is more than R1 million.

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.

Here’s another example to help us work this out.

Beth is a provisional taxpayer and so she's required to submit her second provisional tax return in February 2018.

She's been busy and distracted as she's been setting up a new store for her business and her accountant, who normally prepares her provisional return, has gone on leave. To make it even more stressful, she hasn’t had time to review the February management accounts for her business yet either. Because she’s short on time, she decides to give a rough estimate of her taxable income but errs on the low side, because she intends to top up the underpayment when she files her annual tax return.

She imagines a taxable income of R1 200 000 is a reasonable estimate, so she adds it to her second provisional return and submits in February 2018. However, when August 2018 comes around, she completes her Income Tax Return (ITR12) and receives her Tax Assessment (ITA34), which reflects her actual taxable income of R1 600 000 for the year - and a penalty of R6560.

Because Beth was not aware of the risk of under-estimating her actual taxable income, her estimate of R1 200 000 was less than 80% of her actual taxable income of R1 600 000 (80% x R1 600 000 = R1 280 000). SARS calculated her penalty like this:

Tax on 80% of actual taxable income (R1 280 000) = R429 790

Total tax paid (first plus second provisional tax payments) = R396 990 (Use our handy income tax calculator to work out your tax obligation)

Calculation of penalty = R429 790 – R396 990 = R32 800

Penalty amount = 20% of R32 800 = R6 560

It’s worth knowing that in either case, SARS can also lump on 10% interest on the underpaid tax amount, making the penalty even higher. In order to avoid these pointless under-estimation penalties, never simply guess a number for SARS! Try and estimate effectively and, if possible, use your previous year as a base point. SARS can ask you to justify your estimations, so it's a good idea to keep proper records of your calculations and input data.

3. Late Submission Penalty

SARS doesn't take late submissions of tax returns and/or payments lightly! Even one day late is considered late enough to make you pay a penalty. If you file your provisional tax return after the deadline, SARS considers you to have submitted a 'nil' return – or one where your estimate of taxable income is actually equal to zero.

Unless your actual taxable income is, in fact, zero, this will result in a 20% under-estimation penalty being imposed. This rule came about for tax years starting 1 March 2015.

4. Late Payment and Under-Estimation Penalty

What would happen if you'd been penalised for a late payment on one of your provisional tax payments, and then your annual assessment shows that you've under-estimated your taxable income too?

Fortunately, SARS won't demand the full amounts of both penalties, but you're still in for an extra charge. In this case, the under-estimation penalty will be reduced by the late payment penalty that has already been applied.

 

Let's look at Thabo again as an example.

We'll pretend his second provisional payment of R12 000 was late by a few days. SARS applied the 10% late payment penalty, adding R1200 to Thabo's statement.

His end of year assessment shows he's under-estimated his taxable income and is liable for a penalty of R1534.

Considering the late penalty has already been applied though, SARS will deduct this amount from his under-estimation penalty, therefore (R1534 – R1200) = R334 will be added to his penalties for the year.

Reversal of Provisional Tax Penalties

These rules and penalties may seem harsh, but they exist to discourage taxpayers from deliberately underpaying their tax or postponing paying it.

However sometimes things do happen which are outside of your control. Maybe your bank experienced downtime on the 28th February and caused your payment to reach SARS late?!

If you have a valid and genuine reason for paying or submitting late, and you can provide evidence to back up your case to SARS, it's likely that they'll reverse your penalty – or at least part of it.

Our parting advice to avoid expensive penalties is to ensure that you're not leaving your tax returns – provisional or annual – until the last minute. Eliminate the need for guestimations by keeping a record of plausible projections of your annual income, and have reminders on your email or calendar about important tax dates.

 

Provisional Tax FAQ


How do I convert from a provisional taxpayer to a regular taxpayer? OR How do I de-register as a Provisional Taxpayer?
To de-register as a Provisional Taxpayer (this won’t affect your tax number), go on to eFiling and visit the Home Tab, then click Tax Types and de-register there. This will mean that you are only a "regular" (i.e. non-provisional) taxpayer now.

How do I register for provisional tax as a sole proprietor? 
You can either apply as a provisional taxpayer when you first register for a tax number with SARS, or make the change on your SARS eFiling profile by going to the Home Tab and clicking Tax Types and registering there. Alternatively, you can visit your nearest SARS branch in person or call the call centre on 0800 00 7277 (0800 00 SARS).

Am I still a provisional taxpayer if I earn a salary as well as freelance income?

If you earn non-salary income, for example rental income from a property, interest income from investments or other income from a trade or small business you run, you may be a provisional taxpayer, even if you ALSO earn a salary.

Some exceptions and thresholds do apply though:

If you earn income from running your own business and your total taxable income is above the tax threshold (2020: under 65 years, R79 000) then you will be a provisional taxpayer.

If you do not earn income from running your own business, but your total taxable income from interest, dividends and rental income is greater than R30 000 per year, and your total taxable income is greater than the tax threshold (2020: under 65 years, R79 000), then you will be a provisional taxpayer.

When do I need to submit provisional tax returns?

  • The first payment is due by the end of August (i.e. six months into the tax season).
  • The second payment is due by the end of February (i.e. the end of tax season).
  • *Optional* third payment is due at the end of September (seven months after tax season closes) ONLY if the amount paid in previous payments was insufficient.

My business is running at a loss, do I need to submit a provisional tax return? 
Yes you do, but you would submit a ‘nil return’ i.e. an estimated taxable income of zero which means you would pay no tax.

I missed the deadline, what now?
Late payments are subject to a penalty of 10% of the total tax amount payable, and will be levied for either, or both payment periods (August and February). Not only that, SARS will lump on interest at their prescribed rate, which is currently 10% per annum.

Where can I get the tax figures to insert in my IRP6? 

The IRP6 will automatically calculate the tax you owe on your estimated taxable income. You can also use our employee's tax calculator to work out this amount.

I am a provisional taxpayer – how do I include my Retirement Annuity (RA) contributions in my provisional return?
When you enter your estimated taxable income on your IRP6, you can deduct the contributions you made to a RA for the year, which will reduce the tax paid in this period.

If my employer is taking off PAYE each month, do I still pay that tax again?

When filing your IRP6, there is a spot for your Employees’ Tax and therefore you won’t have to pay this tax again.

Do I include ALL my income when completing my IRP6 Provisional Return?

Yes, you would include all income, including salary and employment income. You will not be taxed twice though, so don’t worry!