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February 13, 2014
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February 13, 2014

Provisional tax

ASL_3It is that time of year again when the tax department of every accounting and auditing firm is preparing for the busy season that lies ahead.

A nightmare time because it’s time for provisional tax!

In this part of our newsletter we are going to answer a few basic questions about provisional tax and, in the process, hopefully shed more light on a relatively obscure subject.

What is provisional tax?

Provisional tax is not a separate form of tax but rather one of the methods used by the South African Revenue Service (SARS) to collect tax. The purpose is obviously to increase the country’s cash flow during the year, since SARS does not have to wait a year to collect income tax but can do so on a six-monthly basis. This is why certain taxpayers have to complete a provisional tax return (IRP6) twice a year and determine if a payment in respect of provisional tax is required.

When is provisional tax payable?

A provisional taxpayer has to submit two compulsory returns (1st and 2nd IRP6) and also a voluntary return (3rd IRP6), should it be necessary.

The 1st IRP6 must be submitted halfway through the taxpayer’s tax year, i.e. six months before year-end (refer to page 5 for an illustration of a February 2014 year-end and the important dates to remember), while the 2nd IRP6 must be submitted before or at year-end.

Note that SARS levies penalties and interest if an IRP6 is not submitted or paid timeously.

The 3rd IRP6 is a voluntary return (the so-called top-up payment) that must be submitted if insufficient payment was made with the first two IRP6s. This IRP6 does not have a deadline but to avoid interest it must be submitted seven months after year-end for February year-ends and six months after year-end for any other year-end.

What should clients have ready to provide to the accountant?

In many instances the tax liability on an IRP6 can be reduced by providing more accurate figures to SARS. It is common practice to reduce liability where the actual liability of the taxpayer is going to be less than that indicated by SARS on the IRP6. But it is important to remember that when SARS’s basic amount is deviated from, or where an estimate is required, calculations must be done accurately and supporting documentation should be kept at hand. In this way penalties and interest can be avoided.

Important information to be held in readiness is the following:

  1. Salary advices that indicate what income has been received and what PAYE has already been deducted and paid to SARS;
  2. Details of assets acquired in the course of the year, since capital gains must be taken into account when calculating provisional tax;
  3. Management statements of businesses, or a statement of income and expenditure; and
  4. Summary of expenditure deducted from tax. (Retirement annuity contributions, pension fund contributions, medical aid contributions, income protection premiums, etc.)

In conclusion

The above information is intended to provide a basic overview of provisional tax.  Provisional tax is unfortunately an area that has become more complex over the last few years and where SARS is increasingly acting strictly against taxpayers who do not pay over the correct amounts. Therefore it is important that provisional tax calculations be made accurately and that payments are made timeously.

You are welcome to contact the author at jaco@asl.co.za or 021 840 1600 should you have any queries regarding provisional tax.

2014 BUDGET SPEECH

You are reminded that the Minister of Finance will deliver his annual budget speech in Parliament on 26 February 2014.

As in the past we will afterwards place a Tax Guide on our website.

This article is a general information sheet and should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice.