All about provisional tax

Published on 29th July, 2024 at 02:05 pm

If you’re longing to quit your nine-to-five and enjoy freelancing freedom, or if you have income other than your salary, you’ll need to face up to provisional tax. In part three of our series on understanding tax basics, we’re empowering you to get your side hustle on while keeping up with SARS.

Reading time: 5 minutes

In this article you’ll learn:

• What provisional tax is and who it applies to
• How to comply with provisional tax
• How to make provisional tax work for you

So, what is provisional tax anyway?

Provisional tax is a method of paying income tax in advance so that the taxpayer does not have a large tax debt on assessment. It allows your tax liability to be spread out over the tax year, in at least two amounts in advance, based on estimated taxable income, SARS explains. There is also an optional third payment after the end of the tax year before SARS issues the assessment. These provisional payments are offset against the liability for normal tax for the applicable year of assessment.

“Provisional taxpayers are people who earn income other than a salary on which no income tax has been deducted,” explains Nicci Courtney-Clarke, head of tax at TaxTim. Examples include rental income, investment income (interest and capital gains), and self-employment income (i.e. freelance activities).

“If you earn additional income, you may still be a provisional taxpayer, even if you earn a salary as well,” says Courtney-Clarke, adding that there are some thresholds and exceptions that apply. “If your additional taxable income consists only of interest, dividends, and/or rental income and is less than R 30 000 per year, then you will not be classified as a provisional taxpayer.”

How to register for provisional tax

Courtney-Clarke lists the following steps to register for provisional tax using your eFiling profile:

• Login to your eFiling profile.
• Click on ‘Home’ on the top menu.
• Click on ‘User’ on the left menu and then on Tax Types.<.li>
• Tick the box next to ‘Provisional Tax (IRP6)’ and your income tax number next to it.
• Click on Register.

What you’ll need to stay compliant

“You should keep a list of your income and expenses, together with all substantiating documents (i.e. invoices, proof-of-payments, and bank statements). If SARS requests your documents, you will need to provide these as proof of your expenses,” says Courtney-Clarke.

If you are claiming business travel, you’ll need a detailed logbook as well, she adds. This should contain a detailed record of your business mileage for the tax year (date of travel, distance, location, and reason for the trip) and should reflect details of each business trip you took, as well as private travel.

How to hack provisional tax

TaxTim offers some tips for provisional taxpayers. These include:

• Keep a detailed spreadsheet of all your income and expenses.
• Separate your business records from your personal ones. A separate business bank account can help make this easier.
• Keep a record of your calculations when claiming business expenditure – such as petrol and cell phone.
• If you’re claiming home office expenses, make sure you have a dedicated room that is exclusively used for your office. This way, you can claim in proportion to your office space.
• Keep all your documents for five years to comply with SARS’ retention period.

You can also reduce your tax liability by being sensible with your money:

• Contribute to a retirement fund, open a tax-free savings account, and join a medical aid.
• Do good by supporting a SARS-approved public benefit organisation, where your donation will be tax-deductible.
• Claim business expenses as detailed above.

How to pay provisional tax

You can pay SARS via EFT or eFiling. If the latter, you’ll need to add your bank details and click the “make payment” button after you submit your provisional tax return. Or do an EFT to SARS.

If SARS has requested documents from you, they have 21 days to review them and check whether a refund is due. If a refund is approved, SARS should refund you within 72 hours, says Courtney-Clarke.

What to do if you’re stuck

Paying provisional tax can be daunting, and many people choose to use a tax practitioner. TaxTim offers blogs, support, and a helpdesk manned by tax practitioners who can assist you, says Courtney-Clarke.