Provisional tax isn’t a separate tax. It’s a way of paying your income tax in advance, in instalments, on the IRP6 return, instead of settling one lump sum when you file your annual return. Companies are automatically part of the system, and so are individuals with income that isn’t taxed through an employer’s payroll: freelancers, consultants, landlords, and investors. Here’s who’s affected, how the numbers are worked out, and how the penalties for getting it wrong actually apply.
Any company earning income that is not subject to employee tax (PAYE) must register for provisional tax and make two payments per financial year. This includes most actively trading companies.
For individuals, it comes down to where your income is taxed. If you earn income that isn’t taxed through PAYE (pay-as-you-earn tax) deducted by an employer, such as business profit, freelance or consulting fees, rental income, or most investment income, you’re probably a provisional taxpayer. If your only income is a salary with PAYE already deducted, you’re generally not, because your employer is already paying that tax over as you go. The line gets blurry when you have a salary plus a smaller side income. There are thresholds that decide whether that extra income tips you into provisional status, and they change from time to time, so confirm the current figures with SARS or with us before assuming either way.
Provisional tax is based on an estimate of taxable income for the current financial year, declared and paid on the IRP6 return via SARS eFiling. The estimate must not be less than the basic amount, which is derived from the taxable income assessed for the latest preceding year of assessment. If the estimate is made more than 18 months after the end of the preceding year, the basic amount must be increased by 8% per year.
The mechanics are the same IRP6 process, but individuals apply their own progressive tax rates instead of a flat corporate rate, and the tax year for individuals runs from 1 March to the end of February. The first payment is due halfway through that year, at the end of August, based on an estimate that can’t be lower than your basic amount. The second is due at year-end, end of February, with the estimate updated to reflect how the year actually went. The closer your estimate tracks your real income, the smaller the gap (and the penalty risk) you’re carrying into that second payment.
Let’s say ABC (Pty) Ltd had taxable income of R300,000 in its most recent year of assessment. The company is now estimating provisional tax for the current year.
Step 1. Establish the basic amount: R300,000 (from prior year assessment).
Step 2. Apply the 8% uplift (if applicable): If the estimate is made more than 18 months after the previous assessment: R300,000 × 1.08 = R324,000.
Step 3. Calculate tax at 27% corporate rate: R324,000 × 27% = R87,480.
Step 4. Split into two payments: R87,480 ÷ 2 = R43,740 per payment (first payment due end of August, second due end of February).
Important: These are minimum estimates based on the basic amount. If the company expects to earn more than R324,000, it should estimate higher to avoid penalties.
Both companies and individuals have access to a voluntary third payment after year-end. It isn’t compulsory, but if your first two estimates fell short of what you actually earned, it lets you pay the shortfall before SARS interest starts accruing on it. When you’ve underpaid, this top-up is usually the cheapest way to close the gap, cheaper than waiting for the interest to run.
Under-estimation of provisional tax carries a 20% penalty on the shortfall when:
Illustration: If a company estimates taxable income of R300,000 but actual income is R450,000, the estimate is 33% below actual. The shortfall in tax is (R450,000 − R300,000) × 27% = R40,500. The 20% penalty on that shortfall = R8,100. This penalty applies on top of any interest charged.
The underlying principle is the same for individuals: pay too little relative to what you actually earned, and SARS can charge a penalty on the shortfall plus interest. The specific size thresholds that decide how strict the test is differ from the company rules above, and shift periodically. Don’t assume the numbers above apply directly to you as an individual; confirm your position with SARS or with us.
Accurate records are essential for making reliable provisional tax estimates. Keep records of all income received, expenses incurred, and deductions claimed. For companies, the return must include a statement of estimated taxable income, signed by a director or authorised representative.
The old way was to reconstruct a year’s income from a shoebox of invoices right before the deadline. The better way is to know the number before you need it. When your accounting lives in the cloud and your bank feeds update daily, your taxable income isn’t something you estimate under pressure. It’s a figure you can check on your dashboard at any point in the year, which turns every IRP6 estimate into a calculation instead of a guess.
Provisional tax preparation can be complex, whether you’re a company estimating your first return or an individual working out if you need to register at all. Working with a registered tax practitioner ensures your estimates are accurate and your submissions are made on time, avoiding penalties and interest. This is general information, not personalised tax advice. Contact DigMe Solutions to discuss your specific provisional tax obligations.