What Is Provisional Tax & How to Pay? South Africa Tax Guide
Provisional taxpayers are basically individuals or companies who earn business income. They do not pay tax on it until the end of the year. This is done because there is no way for them to know how much they earned during the year. It is hard to calculate the tax payable on it. Therefore, they pay a portion of that year's tax in advance throughout the year with each payment being called "provisional income".
This article will discuss provisional tax. Topics will include what it is, how to pay it and more!
Here’s What We’ll Cover:
The Ultimate Guide on How to Pay Provisional Tax in South Africa
Provisional taxpayers can do it themselves. They can even outsource this job to a registered tax practitioner or a company. If you choose to pay it yourself, the first step is to figure out how much of your provisional tax for this year was already paid last year. If you did not pay any tax last year, then that amount is zero. This method will only work if you were a provisional taxpayer throughout that time or you did not complete your annual tax return. If you were not a provisional taxpayer throughout that time, then you will have to do all of this year's calculations yourself.
If you choose to outsource your provisional tax for this year, the company will charge some fees. You can contact these tax professionals directly. Any reputable tax pro should have a website you can visit for more information.
Method 1: Paying Provisional Tax, Yourself
If you choose to pay it yourself, then follow these steps:
Calculating Provisional Income
Calculate your provisional income for this year as if you were not a provisional taxpayer. If you did not complete your annual tax return but you know what amount was reported on the return, you can use that number instead. Your provisional income is equal to your total taxable income for all four quarters of the year. If you received some taxable non-employment income, then split that up equally into four quarters as well.
Calculating Provisional Tax Liability of Previous Year
Calculate your provisional tax liability as if you were not a provisional taxpayer by using this formula:
Taxable Income x BR (Basic Rate) ÷ 100 = IRC (Income Range Contribution)
Calculating Provisional Tax Liability of Current Year
Calculate your current year’s provisional tax liability as if you were not a provisional taxpayer by using this formula:
Provisional Income x BR (Basic Rate) ÷ 100 = IRC (Income Range Contribution)
Adding Both Amounts
Add the two amounts above and that is how much you will need to pay for this year.
Adding Provisional Income & Tax Liability into Form P45
Enter your provisional income and tax liability from the previous steps into the appropriate sections of form P45. You will also need to submit a copy of your provisional certificate with this.
Method 2: Outsourcing Provisional Tax
If you are outsourcing, then follow these steps:
Choosing a Company
Carefully select a reputable tax professional. Be sure to check their website and reviews for more information.
Once you have chosen one, make the relevant payment to them. They will then do all of your provisional tax calculations for you.
Calculating Provisional Tax
Provisional taxpayers calculate their provisional tax. They calculate it by taking their total taxable income for the year and dividing it by four. This is equal to your provisional tax liability. You then add this up with last year's provisional tax liability. Conversely, you add your total provisional tax liability from when you completed your return, whichever amount is higher.
You will need to prove how much tax you paid last year by submitting a copy of your P3 or form IRP5. If you did not complete your previous year’s tax return, then add up the provisional tax that you paid in each quarter for this year. Then submit that with your annual return.
Provisional Tax Deadline
Provisional tax is mandatory in South Africa. It is due by March 31st each year. Whether you calculate this yourself or outsource the work, be sure to complete these tasks by the due date. In other cases, you will face penalties for a late submission.
Who Qualifies as a Provisional Taxpayer?
Provisional taxpayers include:
- Individuals who receive taxable non-employment income (i.e. self-employed).
- Individuals who receive taxable non-employment income (i.e. not working but receiving rental income).
- Individuals or companies that do not complete their annual tax returns.
- Individuals or companies that receive taxable employment income (but are not PAYE taxpayers).
Who is Exempt from Provisional Tax?
Individuals who receive taxable employment income are automatically PAYE taxpayers. This means that they do not have to pay provisional tax on their non-employment income. This is because PAYE already operates for this.
Provisional Tax VS PAYE
Provisional tax is an income-based calculation of the estimated tax payable on non-employment income. It is mandatory, while PAYE is not mandatory if you receive taxable employment income.
Why Should You Outsource Your Provisional Tax Work?
Outsourcing your provision tax is beneficial for a number of reasons.
- It speeds up the process. It makes it easier for you to pay any owed funds on time.
- You will receive accurate calculations and deductions, based on your specific financial situation.
- You will receive easy-to-understand and useful advice.
- Quickly outsourcing all of your provisional tax needs means that you can get back to business as usual. Staying up-to-date on the latest changes in taxation is important for any company. Knowing how to stay compliant is essential for anyone who runs a business.
The article discusses what provisional tax is and who qualifies as a provisional taxpayer in South Africa. It also narrates how to calculate provisional income. You will also learn how to find out how much provisional tax you need to pay every March.
It also discussed outsourcing your provisional tax work. It's important to consider if this is the best option for you. Outsourcing is convenient and helps ensure your information is accurate.
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