Last week I discussed the fact that just because you are a provisional taxpayer doesn't mean that you will not have to have employees' tax deducted from your remuneration. I explained who needs to register as a provisional taxpayer and when provisional tax payments need to be made. Today I will explain how you need to determine what amount of tax you must pay in order not to incur any interest or penalties.
The first two provisional tax payments must be made by August 31, prior to the tax year end, and February 28 (the tax year end). So for the tax year ending February 28 2000, the first payment must be made on or before August 31 1999 and the second by February 29 2000.
If the payments are not submitted by those dates, a 10 percent penalty will be levied in respect of the late payment, and interest will be charged up to the date you submit the payment (the rate is currently 16 percent).
These two payments should be based on the "basic" amount. This is the taxable income reflected on your last tax assessment. The tax is calculated using this taxable income and the current tax tables.
If you receive an assessment more than 14 days before submitting your provisional tax form, you must use the "basic" amount on that assessment.
For the first payment, you must calculate the tax on the "basic" amount and pay half of the tax calculated to the South African Revenue Service (SARS), after deducting any employees' tax you have already paid. For the second payment, you calculate the tax on the "basic" amount and pay that amount to SARS, after deducting the amount you paid for the first payment and any employees' tax you have paid for the year.
Provided you use the "basic" amount to calculate the amount of tax you pay for the first and second payments, you can not be charged any penalties for underpaying your tax, even though your actual taxable income for the year might eventually be more than the figure reflected on your last assessment.
If you think your taxable income for the year will be lower than the "basic" amount (this might occur if you do not work for part of the year, for example) you may choose to submit the provisional tax payment based on the lower estimated amount.
For a lower estimate for the first payment, you need to send a letter to the SARS explaining why you are submitting a lower amount.
But fear not, if your estimate is incorrect, you will not be penalised.
If, by the time you are required to make the second payment, you still think that your taxable income for the year will be lower than the "basic" amount, you may pay the tax based on the lower estimate. But you must be aware that, if your estimate results in the amount of tax you are paying being less than 90 percent of the actual tax you are eventually required to pay when you are assessed, you will be charged a penalty. The penalty is calculated by taking 20 percent of the difference between the actual tax payable and the lesser of:
* The tax calculated on 90 percent of the actual taxable income; and
* The tax calculated on the "basic" amount.
So for example: Your basic amount is R60 000. You estimate your taxable income to be R50 000. You submit your second provisional tax payment based on this figure.
But when the tax is eventually calculated the taxable income amounts to R65 000.
You will therefore be charged the penalty on the difference in the tax payable on R58 500 (90 percent of R65 000) and the tax on R50 000.
But you can ask SARS to remove the penalty if you can show that the under-estimate was not deliberately or negligently made, but was calculated on a reasonable basis.
If you have submitted the first and second payments correctly, but not sufficient to cover the year's total tax obligation, and your taxable income for the year is more than R50 000 (R20 000 for a company) you may submit the balance of the tax owing by September 30 2000 and will not be charged any interest on the balance you pay on that date.
If your taxable income is less than R50 000, you need not make the third "top-up" payment. You can wait to be assessed and provided you pay the tax within the time set out in the assessment you will not be charged interest.
It is clearly important to get provisional tax payments right to avoid being charged interest and penalties.