Some people qualify as provisional taxpayers, but a lot don’t know what that means or what provisional tax is. So, in this article I will try to clear up some of the smoke surrounding this often-misunderstood and feared tax.
Firstly, provisional tax is not a separate type of tax, such as VAT or the road tax you pay through your very expensive fuel bill. Provisional tax is merely a method that SARS uses to collect income tax, whether it be company tax or personal income tax. For individuals it uses the same tables and rates as you would be taxed on if you were a straight forward employee and counts towards the same tax bill as an employee pays through the PAYE that is shown on their payslip. The big difference is when and how this tax is calculated and paid to SARS. Employees pay their tax every month, provisional payers pay it twice a year before the 31st August and 28th February. For companies it uses the straight forward 28% tax rate or the small business tax tables.
Before we get into a practical example of this let’s quickly discuss who this system is for. Very simply, you would be a provisional tax payer if you earn income from any source other than a single employer. This means if you earn:
Let’s now look at the example of Mr A and Mrs B.
Always remember that a tax year runs from March to February.
Mr A is a 35-year-old and works for a single company. He receives R10 000 a month from this company. He receives a payslip every month that shows PAYE was paid to SARS of R627.75 and he takes home R9 372 (let’s ignore UIF for this example). His tax has been paid to SARS by the company. By the end of the year he will have earned a total amount of R120 000 and paid SARS R7 533 (even if he doesn’t want to). He will receive an IRP5 at the end of the year from his employer showing these two amounts.
All Mr A has to do is submit his tax return during July – October, receive his assessment and he is done for the tax year.
Mrs B on the other hand is a 35-year-old who only rents out a flat for R10 000/month (must be a nice flat). She doesn’t have an employer to give her a payslip but SARS still needs to receive the tax, so what must she do? Well, being out of her depth she contacts Allen Payroll, Accounting & Tax and gives us this information. We then handle her submission to SARS in August and February of each year and ensure she doesn’t pay more tax than she absolutely must. We use a similar calculation to the payroll system to work out that Mrs B will have an estimated yearly income of R120 000 (we’ll ignore the expenses she could use to reduce this for now, but we would have helped Mrs B reduce this income as much as legally possible).
Because she can’t pay the taxes on this income over to SARS as PAYE, she needs to do it through the provisional tax system. So, in August we calculate that her yearly tax bill should come to R7 533 (note that the tax owing is exactly the same as Mr A). Mrs B will then need to pay half of this amount in August, R3 766.50. When February rolls up, she will settle the remainder of this bill, R3766.50. Of course, the provisional’s are an estimate and the actual amounts may have changed by the time we get to February.
Now, just like Mr A, all Mrs B has to do is submit her tax return (or preferably ask us to do it for her, rental income can become quite complex on the return) during July – January, receive her assessment and she is done for the tax year. Remember that provisional payers get 3 extra months to file their final return.
The same amount of tax due will be paid to SARS in both cases, it is just the way it is paid that changes.
So, if we take a look at the provisional taxpayer’s year it will look like this:
I hope that we’ve cleared some of the fog from the provisional tax system and given you a better understanding of how our country collects their taxes. We at Allen Payroll stand ready to help you through every step of this often-misunderstood tax system, don’t delay, contact us today.
Author: Brandon Allen
I'm a business Accountant in practice. Nothing fancy about me, but occasionally I have a flash of inspiration you might find useful. My blood is also 50% coffee.
Note that no information in these posts constitutes official advise, please contact us with your specific needs.