GUIDES: Clock is ticking for provisional taxpayers
Sevitz says the deadline for the first provisional tax return is August 30. Taxpayers not only have to submit their return by this deadline, but they also have to make the payment on the same day.
Sevitz, a chartered accountant and registered tax practitioner, says provisional tax is a payment mechanism that is intended to assist businesses and individuals meet their normal tax liabilities. It is based on the estimated taxable income for the year. The first payment is due at the end of next month, the second at the end of February next year and a possible third top-up payment is due in September.
Sevitz says you should know the following about provisional tax:
* Who is a provisional taxpayer? Provisional taxpayers receive income, other than a salary or remuneration from an employer. They run their own businesses, such as freelancers, sole proprietors and independent contractors. Taxpayers who are employed, but receive rental income or interest income from investments, may be obliged to register as a provisional taxpayer if certain conditions are met.
* How the system works. If you are self-employed and earn taxable income above the annual threshold of R79000 for the current tax year, you must be registered as a provisional taxpayer. If you are employed and also earn additional freelance income you will be a provisional taxpayer. If your additional income consists only of rental and/or interest income which exceeds R30000 a year, you will be a provisional taxpayer.
* Period and payments. The first period for 2020 includes the six months from the start of the new tax year (March 2019). If you make your first payment after the deadline, the SA Revenue Service (Sars) will automatically levy a penalty of 10 percent of your tax due.
Sars also charges interest at 10.25 percent of the tax due. If you fail to submit a return, Sars may estimate your tax liability based on prior returns. Sars may also ask you to justify your estimates and can increase it if they are not satisfied with the taxpayer’s calculation. It is important to keep any supporting calculations.
* What to remember. Many taxpayers only enter the turnover (the estimated gross income for the current tax year) and estimated taxable income (turnover minus estimated expenses for the current tax year) for the six months. Taxpayers must estimate their earnings for the 12 months, and since they know what they have earned in the first six months, it is possible to simply double the amount if they think their earnings will be consistent for the rest of the year. The second provisional tax payment in February is the most important one since taxpayers will be subjected to harsh under-estimation penalties if they got it wrong.
* What you need. Provisional taxpayers who have to file their first return by the end of this month should have their supporting documents ready should Sars request them. These documents include: the income statement for the business, which will reflect the income and expenses for the first six months of the tax year; payslips for the period; a schedule of your rental income and expenses for the period; statements from financial institutions where you hold investments that reflect the interest or capital gains earned on the investment and invoices for the expenses claimed.
* Submit a nil return if applicable. If you owe no tax but are a provisional taxpayer, you should still submit a provisional (nil) return to ensure an unbroken filing history with Sars.