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Provisional tax explained: who pays, when, and how to avoid the penalties
Provisional tax is not an extra tax. It is a payment schedule. Here is how the August and February payments work, how to estimate, and how to avoid the 20% underestimation penalty.
Provisional tax catches more freelancers, directors and landlords off guard than any other part of the tax system. The concept is simple once you see it clearly.
It is not an extra tax
Provisional tax is simply paying your normal income tax during the year instead of in one lump sum when SARS assesses you. If you are an employee, your employer does this for you through PAYE every month. If you earn income that nobody withholds tax on, SARS expects you to do it yourself, twice a year.
Who is a provisional taxpayer
You are a provisional taxpayer if you earn income that is not remuneration (salary with PAYE deducted) and either:
- Your taxable income from interest, dividends, rental and other non-salary sources exceeds R30,000 a year, or
- You run a business, freelance, earn commission without PAYE, or are a director of a private company receiving income not taxed at source.
All companies and trusts are provisional taxpayers automatically. Individuals earning only a salary with full PAYE are not, even if they earn a lot.
The payment calendar (February year end)
| Payment | Deadline | What you pay |
|---|---|---|
| First (IRP6 period 1) | 31 August | Half the tax on your estimated taxable income for the full year |
| Second (IRP6 period 2) | 28 or 29 February | Tax on your full-year estimate, less the first payment |
| Third (voluntary top-up) | 30 September | Any shortfall, to stop interest running until assessment |
Companies with other year ends pay six months after the start of the year and at year end.
How the estimate works
For the first payment, SARS lets you use the “basic amount”, which is your last assessed taxable income (adjusted upwards by 8% a year if that assessment is more than 18 months old). Using the basic amount protects you from penalties for the first payment even if your income turns out higher.
For the second payment the rules are stricter. Your estimate must be at least:
- 80% of your actual taxable income if that income ends up at R1 million or below, or
- 90% of actual if it ends up above R1 million.
If you fall short, SARS levies a 20% penalty on the difference between the tax on your estimate and the tax on the required percentage. This is the penalty that stings, and it is avoidable with a realistic February estimate.
Interest and late payments
Pay late and SARS charges a 10% late payment penalty plus interest at the prescribed rate. Missing the second payment entirely is treated as an estimate of nil, which usually triggers the underestimation penalty too.
Practical tips
- Put money aside monthly. Decide on a percentage of every invoice (often 25% to 30%) and move it to a separate account the day you get paid.
- Do a proper February estimate. By mid-February you know eleven months of income. Do not guess; add it up.
- Use the third payment. If your February estimate was light, topping up in September stops interest.
- Keep books during the year. Provisional tax is painful only when you are reconstructing the year in a weekend. If your books are up to date in FTG Books, the estimate takes ten minutes.
If you would like me to calculate and submit your provisional returns and plan the cash flow around them, see the provisional taxpayer package or get in touch.
This article is general information, current at the date of publication, and not advice. Tax law and SARS practice change; please confirm the position for your own circumstances or book a consultation.
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