Explaining Provisional Tax

Provisional Tax can be defined as a tax specifically designated to companies to relieve their tax duties by dividing tax payments into 2 or 3 periods, instead of making one big payment at the end of the tax year. SARS’ provisional tax system allows companies to make at least two tax payments throughout the course of the tax year. Your company’s final tax liability will be determined based on an assessment.

The Provisional Tax system enables companies to make payments throughout the year from their income received. The first payment needs to be made six months after the first day of the tax year i.e. 31 August 2010 and the second payment is payable the last working day of the tax year which is 25 February 2011.

Companies can also make a third payment which is known as a ‘topping amount’. This payment however is entirely voluntarily. If you choose to make a third payment it needs to be made 6 months within the end of the tax year; that is if your company’s last day of accounts is on a day other than the last day of February. If your company’s last day of accounts is the last day of February payment is payable 7 months within the last day of February.

Provisional Tax: First Payment (31 August 2010)

• Half of your company’s total tax for the tax year

• Less your company’s employees tax deductions for the 6 month period.

• Less any allowable foreign tax credits for the 6 month period.

Provisional Tax: Second Payment (25 February 2011)

• Estimated tax for the full year (12 months)

• Less the employees tax for the full year

• Less any allowable foreign tax credits for the 6 month period.

• Subtract the amount paid for the first period

Provisional Tax: Third Payment

• Total tax payable for the full year

• Less the employees tax for the full year

• Less any allowable foreign tax credits for the 12 month period.

• Less the amounts paid for the first and second period.

Provisional Tax payments are subject to completing and submitting an IRP6 form. This form is available from your nearest SARS branch, downloadable from the SARS website or via the post.

It is important to note that if you fail to make payment, interest will be levied on the amount outstanding or interest received on the amount overpaid.

If you have any questions regarding Provisional Tax, contact us today