In short
- Provisional tax is not an extra tax. It is income tax paid in advance, in instalments.
- Anyone earning income not subject to PAYE is generally a provisional taxpayer.
- There are two compulsory payments a year, with an optional third.
- Under-estimating your income can attract a penalty.
- SARS, Provisional Tax
Provisional tax is how SARS collects income tax from people whose income is not taxed at source. If you are a sole proprietor, a freelancer, or a company, this almost certainly means you.
It is not an additional tax. It is the same income tax, paid in instalments during the year rather than in one amount afterwards.
The provisional tax payment cycle
| Payment | Timing | Based on |
|---|---|---|
| First | Six months into the tax year | An estimate of the full year |
| Second | End of the tax year | A more accurate estimate of the full year |
| Third (voluntary) | Some months after year end | Topping up before interest accrues |
For individuals on a February year end, the first falls at the end of August and the second at the end of February. Companies follow their own financial year.
The estimate is the hard part
You are estimating a full year of income, and the second payment in particular is measured against what you actually earned. Under-estimate significantly and a penalty can apply.
Practical approach: keep your bookkeeping current so the estimate is a calculation rather than a guess, and revise upward if the year runs ahead of expectation. Over-estimating costs you cash flow. Under-estimating costs you a penalty, and the penalty is the more expensive mistake.
Setting money aside
- Move a percentage of every payment received into a separate account, the same week it lands
- Do not treat the business bank balance as available cash. Some of it is SARS's and some is VAT
- Reconcile the set-aside against your actual position quarterly, not at deadline
- Diarise both payment dates at the start of the tax year
The single most common cash flow failure in small South African businesses is a provisional payment falling due in a month where the money has already been spent.
Common questions
Am I a provisional taxpayer?
Generally yes if you earn income that is not subject to PAYE. There are exclusions, so confirm your position.
What if I estimate wrongly?
Under-estimation can attract a penalty on the shortfall. The third voluntary payment exists to reduce interest where you have come up short.
Does it apply if I made a loss?
You may still have filing obligations even where nothing is payable.
Current invoicing records make the estimate a calculation rather than a guess.
Start invoicing- SARS, Provisional Tax
Disclaimer: This content is for general information only and does not constitute legal, tax, accounting or financial advice. Always confirm important requirements with SARS, the relevant authority or a qualified professional.
