There are always questions about provisional tax as it’s a relatively obscure subject. We are going to run through a few of the basic questions about this tax.
What is provisional tax?
Provisional tax is not a separate form of tax. It is in fact, one of the methods used by the South African Revenue Service (SARS) to collect tax. The purpose is to decrease the amount of tax paid by the taxpayers in one amount. Provisional taxpayers have to complete a provisional tax return (IRP6) twice a year. This means 2 “smaller” amounts paid rather than one massive lump at the end of the year. In doing this they determine if payment in respect of provisional tax is required.
When is provisional tax payable?
A provisional taxpayer has to submit two compulsory returns (1st and 2nd IRP6). A voluntary return (3rd IRP6), may be necessary.
The 1st IRP6 must be submitted halfway through the taxpayer’s tax year, i.e. six months before year-end while the 2nd IRP6 must be submitted before or at year-end.
Note that SARS will charge penalties and interest if an IRP6 is not submitted or paid timeously AND accurately.
The 3rd IRP6 is a voluntary return (the so-called top-up payment) that must be submitted if insufficient payment was made with the first two IRP6s. This IRP6 does not have a deadline but to avoid interest it must be submitted seven months after year-end for February year-ends and six months after year-end for any other year-end.
What information should someone give to their accountant?
In many instances, the tax liability on an IRP6 can be reduced by providing more accurate figures to SARS. It is common practice to reduce liability where the actual liability of the taxpayer is going to be less than that indicated by SARS on the IRP6. Remember that when SARS’s basic amount is deviated from, or where an estimate is required, calculations must be done accurately and supporting documentation should be kept at hand. In this way, penalties and interest can be avoided.
Important information to be held in readiness is the following:
- Salary advice that indicates what income has been received and what PAYE has already been deducted and paid to SARS;
- Details of assets acquired in the course of the year, since capital gains must be taken into account when calculating provisional tax;
- Management statements of businesses, or a statement of income and expenditure; and
- Summary of expenditure deducted from tax. (Retirement annuity contributions, pension fund contributions, medical aid contributions, income protection premiums, etc.)
In conclusion
The above information is intended to provide a basic overview of provisional tax. Provisional tax is unfortunately an area that has become more complex over the last few years. SARS has become increasingly acting strictly against taxpayers who do not pay over the correct amounts. Therefore it is important that provisional tax calculations be made accurately and that payments are made timeously.
Contact BC Accounting Services for more information on our taxation services and filing company tax returns.
Phone 084 294 8935 or email bruce@bcas.co.za