Provisional tax, explained in plain language

Provisional tax is not a separate tax. It is a way of paying your income tax in instalments during the year, instead of in one large amount after the year has ended. Employees already do this through PAYE, which their employer deducts every month. Provisional tax does the same job for income that PAYE does not cover.

Who pays it

You are generally a provisional taxpayer if you earn income other than a salary, for example from running a business, freelancing, renting out property or earning significant investment income. Companies are provisional taxpayers too. There are limited exemptions, so it is worth confirming your position rather than assuming.

How the payments work

• First payment: within six months of the start of your tax year. For most individuals, whose tax year ends in February, this is the end of August.
• Second payment: by the last day of the tax year, usually the end of February.
• Optional third payment: a top-up after year-end, which can reduce the interest you would otherwise pay if your earlier payments were too low.

Each payment is based on an estimate of your taxable income for the full year, submitted on the IRP6 return through SARS eFiling. Credit is given for any PAYE already deducted and for the first payment when you make the second.

Getting the estimate right

The second estimate matters most. If it turns out to be too low compared with your final taxable income, SARS can charge a penalty for underestimating, on top of interest on the shortfall. Late payments and late submissions attract their own penalties.

• Base your estimate on up-to-date management figures, not last year's numbers alone.
• Revisit it before the second payment, when you have most of the year's results.
• Set money aside monthly, so each payment is not a cash-flow shock.

The aim is not to guess. It is to estimate carefully, with records that support the number.

If you are newly self-employed, or your income has changed significantly, start with your records. Up-to-date books make every estimate easier and far less stressful.