It’s tax season once more…

by Madeleen van Schalkwyk | August 17, 2021

It is August 2021. All accountants and tax practitioners are running around like headless chickens – Again! All stressed and busy with tax season. This time around it really is tax season, and all individuals need to file their annual tax return for 2021 as well as the first provisional tax return for 2022. Remember the third top-up payment by the end of September!

Let me clarify:

Provisional tax is a tax registration where you are required to file six-monthly provisional tax returns and pay the relevant tax due.
If you are an individual taxpayer, your tax year ends on the last day of February. An annual income tax return can usually be filed from July onwards. If you are, however, registered as a provisional taxpayer, you now need to file and pay provisional tax by the end of August and February annually.
Provisional, meaning, you take your estimated taxable income for the current year, calculate the tax due and pay that over to SARS.

This can be better explained with an example:

The 2022 tax year ends on 28 February 2022. The first provisional tax has to be calculated, return filed, and any taxes paid by 31 August 2021. The second provisional tax return is due by 28 February 2022.

The difficulty taxpayers face is that the month and tax year have not yet ended. How can you calculate your taxable income? You must work on estimates, estimates that can lead to penalties if not accurate enough.
Let us first start with how you register or become liable for provisional tax (please do not stop reading, I am not going into technicalities):

  • You earn remuneration but no employee’s tax is deducted – example can be commission or consulting fees, only if this exceeds R30,000.00 per annum.
  • You derive income which is not remuneration – example can be interest income or rental income, only if this exceeds R30,000.00 per annum.
  • You are notified by SARS that you are a provisional taxpayer.

You can also look at your last tax assessment. On page one there is a section where SARS will show a “Y” or “N” indicating whether you are a provisional taxpayer.

Based on the information above, if you do not qualify to be a provisional taxpayer, you can now take a relaxing deep breath but remember to file your annual tax return for 2021 which is usually due in November.

If you do qualify, what do you do? Do I need to phone SARS? Do I need to visit a SARS branch? Do not panic, this is a very quick and pain free registration. Log onto your E-filing profile. Click on Home (At the top of your screen next to Returns) under User, select Tax Types. Tick Provisional Tax, add your tax number and select your nearest SARS branch. Scroll down and click on register. The status next to the tax types should now show as ‘Successfully Activated’. Congratulations! Now you have to file provisional tax returns every six months.

The first provisional tax return will be based on your estimated taxable income from 1 March to 31 August:

  1. Use your actual taxable income from 1 March to 31 July and estimate the amount for August. Unless you have a substantial change in income or tax-deductible expenses for the six months to August, your calculations should now be as close to accurate as possible.
  2. Scale this up to 12 months and calculate the tax thereon, deducting the rebates for the tax year.
  3. If you earned any employment income and PAYE was deducted, this PAYE can also now be deducted from the tax amount due.
  4. The 12 months information should now be submitted on the provisional tax return. SARS will then divide the tax liability by two.
  5. You are now left with the tax to pay on the first six months of the tax year.
  6. If the calculation comes to zero or is less than the rebates, then no tax is payable for that provisional tax return.
  7. However, you should still submit the provisional tax return.

The second provisional tax return will be based on your estimated taxable income from 1 March to 28/29 February the subsequent year:

  1. Use your actual taxable income from 1 March to 31 January and estimate the amount for February.
  2. Unless you have a substantial change in income or tax-deductible expenses for February, your calculations should now be as close to accurate as possible.
  3. You now calculate the tax thereon and deduct the rebates for the tax year.
  4. If you earned any employment income and PAYE was deducted, this PAYE can also now be deducted from the tax amount due.
  5. The 12 months information should now be submitted on the provisional tax return. SARS will then deduct the first provisional tax payment made in August.
  6. You are now left with the tax to pay on your taxable income earned during the last six months of the tax year.
  7. If the calculation comes to zero or is less than the rebates, then no tax is payable for that provisional tax return.
  8. However, you should still submit the provisional tax return.
Taxable income will be your remuneration, interest, rental, or any other taxable income earned for the tax period. Deductions allowed can be in the form of home office expenses, allowable donations made, contributions to a retirement or pension fund and any other expenses allowed by SARS.

SARS can raise penalties and add interest if this is not done correctly.

There is a 10% penalty for late payment of provisional tax. Remember that when the 31st of August or 28/29th of February falls on a public holiday or the weekend, you must submit and pay on the Friday or business day before that weekend or public holiday.

There is a 20% penalty for the underestimation of taxable income if in respect of the second provisional payment:

  • Taxable income is less than R1 million: Your estimate of taxable income is less than the taxable income for the year or the basic amount – the lower of the two.
  • Taxable income is more than R1 million: Your estimate of taxable income is less than 80% of the actual taxable income for the year.

The basic amount will be based on your taxable income on your last tax assessment less any lump sum payments and capital gains. This should appear on your provisional tax return.

Should you have submitted your two provisional tax returns and made payments, the annual income tax assessment will consolidate these two provisional tax returns. Payments made will be deducted from the tax assessment. If there is still an amount owed to SARS, this must be paid by 30 September (or on the Friday or business day before that weekend or public holiday). This is called the third provisional tax payment, but there is no third provisional tax return. If not paid timeously there will be interest charged by SARS and you owe SARS even more. If you overpaid and SARS owes you money, the overpayment will receive interest from SARS on which you have to pay tax.

If the taxpayer is not an individual, it probably is a provisional taxpayer (there are only a few exclusions to this rule).
Six-monthly provisional tax periods will be based on the date of the taxpayer’s financial year end. This will always be six months from the start of the financial year and on the last date of the financial year. Remember about the rule regarding a public holiday and weekend. The third provisional tax payment will be six months (or seven months should the taxpayer’s year-end coincidentally also be at the end of February) after the start of the financial year end.

We are now facing the first provisional tax for 2022 deadline by 31 August 2021. Then the third top-up if you still owe any tax on your 2021 tax return is due by 30 September 2021.

This, in a nutshell and without too much technical mumbo-jumbo, is the reason why tax season can be so stressful. Should you wish that someone else should worry about this on your behalf, do not hesitate
to engage with waucomply ( comply@wauko.com ).

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