Provisional Tax Submissions – August 2019 for the Tax Year Ending February 2020

In August it is time again for the first provisional tax submissions for individuals registered for provisional tax along with all companies and entities.

We have received a lot of questions around provisional tax for individuals and if they should be registered for provisional tax.  What does this mean for individuals?

We thought it will be a great idea to remind everyone what provisional tax is and ask people to start sending their information to us.

Provisional tax is almost the same as PAYE. You pay PAYE on a monthly basis on the salary that you earn. This means SARS receives a portion of its taxes up front and when the tax year is finished and tax returns are submitted, hopefully there aren’t any surprises and some of the taxes have been collected already. This is also very important for the economy because the government needs our taxes to do secret-state important stuff with 😊.

Provisional tax is exactly the same except SARS expects us to make a calculation of the estimated taxable income for the whole year (including income from all sources) and if there is a deficit (too little tax paid), we pay it as part of our provisional tax submissions. This will ensure that when we submit our tax returns that there really won’t be:

  1. Too much tax to be paid all at once and,

  2. Leave the government without taxes during the year by collecting it all too late

The theory behind this is 100% correct and SARS will penalise you for not paying enough provisional tax if it is due.

However, there are practical issues with provisional tax:

Problem 1: People don’t know that they need to be registered for provisional tax. When they do their tax return and includes things like interest income, rental income or business profits, they are hit with a penalty for underpayment of provisional tax. 

At Anlo we address these problems by discussing their tax affairs with clients and explaining why this has occurred. If the client did not know and it is genuinely an oversight, we will apply to SARS for a waiver of the penalties. To be able to do this we need solid proof to build a convincing case. That is why it is always a good idea to consult a professional when your income sources change significantly, i.e. a big change or large amount of money.

We continuously educate people on provisional tax and send out newsletters and reminder emails to make sure people are made aware of this. We also refer to the provisional tax calculations when we do the yearly tax return submission and make sure we have record of any changes.

Problem 2: People earn income from various sources and receive a significant amount of interest that they re-invest and don’t even know about.

This means that because of the interest income, the individuals need to be registered for provisional tax (income received from any other source except employment income) and because of the multiple IRP5s and IT3 find themselves in a higher tax bracket when all the income is added together. This is a big problem because they end up paying a lot of tax and have an understatement of provisional tax penalty.

At Anlo we can help you address this by looking at your tax affairs in detail so that we can take the necessary step to either:

  1. Increase their effective tax rate at their sources of employment/income

  2. Make sure they calculate and submit a provisional tax return and pay the deficit

It is important to remember that your tax liability is calculated is by adding income from all sources, applying exemptions/deductions and then calculating tax on the resulting income.

When a payroll system calculates PAYE, it does not know that the individual might be earning income from other sources and will only apply an affective tax rate to the salary earned from the employer.

That is why it is very important to make sure your HR/Payroll department is aware of changes in your tax affairs that will affect your taxes significantly i.e. medical aid deductions and effective tax rate changes

It is also very important to understand when you earn more than one salary or more than one IRP5 is received, that you are liable to file a tax return and should calculate your tax affairs including provisional tax.

Problem 3: You are expected to calculate and pay over second provisional tax based on your estimated taxable income for the period 1 March – 28 Feb on or before the 28th of Feb.

This means you can’t do it after the Feb otherwise there will be penalties and interest. This is also why it is important to keep proper record of all income and expenses and be able to perform this calculation quickly. It also helps to calculate and pay provisional tax in August to ensure your provisional tax liability is not high in February – straight after the December holidays {yes, we have heard that as a reason a lot 😊 – and we totally agree. Who wants to pay a large provisional tax bill in Feb}?

The best way to ensure your provisional tax calculation is as accurate as possible is to keep records and save all relevant documents and information to be able to perform this calculation. Also, start early and make sure your accountant is given the right information sooner rather than later!

Use estimates and budgets to extrapolate your income and expenses. If possible, use accounting software like Xero or FreeAgent to keep accounting records.

If you would like us to help you with your provisional tax return calculations and submissions, please send us the following as soon as possible. By the 23rd of August at the very latest. The 1st provisional tax submission is for the period 1 March – 31 August 2019.

How you will know if you are a provisional taxpayer? If you earn any other income except for salary income i.e. consulting fee income, high interest income, capital gains or rental income etc. you should submit a provisional tax return. All entities/companies are registered for provisional tax and provisional tax should be submitted. There is also a ‘Y’ on your latest assessment.

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What happens if I don't submit a provisional tax return? When you submit your 2020 income tax return (in July 2020), and SARS assesses you to have other income, but no provisional tax returns have been submitted, SARS will levy you with penalties and interest including non-submission penalties. 

We are only doing the first provisional tax submissions now. You still have time to February 2020 to correct this. 😊 The two provisional returns make up your total provisional tax payments made so in total they must not be less than 80% of the total tax payable.

Because we need to calculate your provisional tax before we can submit it, we would really appreciate it if you could send it to us as early as possible.

This will ensure:

  • Accurate calculation

  • No unnecessary penalties and interest

  • Enough time to finalize and submit your return and hopefully add some value

We will need the following:

  • An estimate of your total yearly earnings including

  • Salary Income (Send us your payslip)

  • Interest Income (We can base this on 2016 if you have not made any additional investments or do not know of any changes)

  • Rental profit (Income less Expenses schedule)

  • Business profit if you trade as a sole proprietor or do consulting work in your personal name (Income less Expenses schedule)

  • Pension Income

  • Annuity Income

  • Retirement exit income (when you exit out of your retirement fund)

  • Any other income

  • Medical aid contributions and how many dependants you have on your medical aid. Please remember that this is only if you personally pay the medical aid.

  • Retirement annuity contributions for the year paid.

  • Any other allowable deductions that you have not considered above

If you have any questions, please do not hesitate to contact us via email or phone us on 011 658 1324.

Annja LoucaSARS, Tax