February month is provisional tax month for all legal entities with a February year end. This includes companies, close corporations, trusts and all individual tax payers who receives income other than a fixed monthly salary.
If you don’t pay attention to your calculation, this estimated tax return can result in unnecessary penalties and interest
Provisional tax returns
Provisional tax returns are split into two groups: Those whose taxable income is above R1 million and those whose taxable income is below R 1 million. Remember to take Capital Gains into account as it can place you in the above R1 million category, even though you don’t normally fall into this bracket.
You need to be at least 80% accurate in your calculation as a tax payer, if your final calculated taxable income is above R1 million. If you underestimate your provisional tax, and it is identified when the final assessment is raised, it will result in penalties and interest that you need to pay. Unfortunately there is no Basic amount that can be used to limit the risk of penalties and interest.
The Basic amount
This is an amount provided as guideline by SARS and acts as a safety net for those whose taxable income is below R1 million. The Basic amount is based on the last assessment and adjusted for inflation. Taxpayers whose taxable income is below R1 million must be at least 90% accurate to avoid penalties and interest, unless they pay provisional tax that is equal or more than what is payable if the basic amount is used. Remember that if SARS provides a Basic amount and the final (on assessment) taxable income is more than R1 million, the Basic Amount safety net will not apply.
Provisional tax payment
If your provisional tax payment is correctly calculated, within the rules and safety nets as provided by SARS, there is no reason that any penalties or interest is payable. Also remember that payment is due on the last working day of February and a 10% penalty applies on late payments.
You need to pay Provisional tax every 6 months because it is a compulsory estimated tax return. You also have the option to make an additional voluntary submission and payment, to avoid interest if you can not submit your annual tax return within 6 months (by 31 August) of year end.
A Provisional tax return (IRP6) is not a complicated return but can cost a taxpayer dearly in penalties and interest if not done correctly. If you need any assistance with your provisional tax return (IRP6), please don’t hesitate to contact us: firstname.lastname@example.org
Remember, no Tax problem too big or small, we’ve got this!