30th August is notable for several reasons. Of course it’s the day that European leaders outlawed the crossbow in 1146, but for South Africans it holds significance as it is the first 2019 deadline for provisional tax returns.
More importantly it’s not simply the day that submissions are due, but also the deadline for payments, which means failure to do can lead to severe penalties and fines, according to co-founder of TaxTim, Marc Sevitz.
“Provisional tax is a payment mechanism which is intended to assist businesses and individuals to meet their normal tax liabilities. Provisional tax payments are based on the estimated taxable income for the year. The first payment is due at the end of August 2019 and the second is due at the end of February 2020, with a possible third top-up payment in September 2020,” says the TaxTim co-founder.
Sevitz has also outlined a handful of important aspects for people and business alike to keep in mind with the deadline looming.
What you need to know
To that end he explains that those qualifying as provisional taxpayers are defined as follows.
“Provisional tax payers 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,” he points out.
“If you are self-employed and earn taxable income above the annual threshold of R79,000 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 R30,000 per year, you will be a provisional taxpayer,” Sevitz continues.
Looking at the provisional tax period and payments due, he adds that, the first period for 2020 includes the six months from the start of the new tax year, which is March 2019.
Added to this, if you make your first payment after the deadline, SARS will automatically levy a penalty of 10 percent of your tax due. The revenue service will also charge interest at 10.25 percent of the tax due, with failure to submit a tax return leading to SARS estimating your tax return based on prior liabilities.
A checklist of items
When it comes to what to remember, Sevitz notes that, “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,” he stresses.
He also advises that first time provisional taxpayers should have the following documents ready should SARS request them:
- 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 investments; and
- Invoices for the expenses claimed.
Lastly Sevitz says it’s worthwhile submitting a nil return if applicable.
“Even if you owe no tax but are a provisional taxpayer, you should still submit a provisional return to ensure an unbroken filing history with SARS,” he concludes.