You are Here > Home > Taxes > Advice for provisional taxpayers who have missed the tax deadline

Advice for provisional taxpayers who have missed the tax deadline

Apr 19, 2018

By Jeremy Burman of Private Client Holdings

Provisional taxpayerAre you a provisional taxpayer who recently awoke in the dead of night in a cold sweat with the realisation that you missed the 28 February 2018 provisional tax deadline? Or do you have a sinking feeling that you should have submitted a provisional return but didn’t? Either way, burying your head in the sand in the hopes that the issue will go away is not the best way forward.

Where provisional returns or payments are outstanding, penalties and interest will automatically be levied on your account by the SARS system from 1 March 2018.

Provided that SARS does not contact you in the interim to demand full payment of outstanding amounts, the full effect of your non-compliance will only be felt on submission of your annual return when your final tax payable includes understatement and late/non-payment penalties on provisional tax payments, along with monthly interest on these amounts. This can be a nasty shock that can create unnecessary financial hardship when one has only budgeted for actual tax due.

Fortunately steps can be taken to mitigate the potential penalties and interest that may arise from this oversight.

Effectively, the provisional tax system operates as a prepayment mechanism of annual income tax for taxpayers who earn income that is not subject to PAYE. Often taxpayers are confused as to whether or not they should be submitting provisional tax returns.

In terms of the Income Tax Act, you are required to submit provisional tax returns where you are a sole proprietor (i.e. run a business in your own name), or where your taxable income exceeds the tax threshold and you derived income from either interest, foreign dividends, property rental or remuneration from a foreign employer (who is not registered for PAYE) in excess of R 30 000 on an annual basis. Your annual assessment will generally state whether you are liable to submit provisional tax returns.

However, where your circumstances change during the tax year and you become liable to submit provisional returns ‒ for example you resign from fulltime employment and start a business on your own ‒ the onus will be on you to register for and submit provisional tax returns and payments in that tax year.

10% late payment penalty

As an individual provisional taxpayer, you are obliged to submit provisional tax returns on a bi-annual basis by no later than 31 August (the first provisional tax return) and 28/29 February (the second provisional tax return) of each tax year.

Non-submission of provisional tax returns or non-payment of provisional tax due will result in an automatic 10% late payment penalty being levied on the taxpayer’s account on the provisional tax due. A provisional taxpayer can make a voluntary third provisional tax payment by 30 September where there is a tax shortfall for the year. This payment is generally referred to as a ‘top-up payment’ and will prevent interest being levied on the tax shortfall from this date.

Beware of under-estimation penalties

Provisional tax returns require the taxpayer to calculate their tax due bi-annually based on an estimate of their taxable income for the tax year. These differ from the annual income tax return where actual income and expenditure figures for the tax year must be disclosed.

Although the provisional return is based on estimates, a taxpayer should still take due care to ensure that these figures are reasonable since the Act provides for severe under-estimation penalties where insufficient provisional tax is paid.

Where your taxable income is below R 1 million per annum the Act requires that your provisional tax estimate must be based on a minimum of the lower of your basic amount (generally your prior year taxable income less capital gains) and 90% of your current year taxable income.

Where your taxable income is above R 1 million per annum the Act requires that your provisional tax estimate must be based on a minimum of 80% of your actual taxable income finally assessed. Where the provisional tax estimates are based on amounts lower than the prescribed minimum amounts, understatement penalties of 20% on the tax that should have been paid (less what has been paid) will apply.

What to do if you missed your tax deadline

When you realise or suspect that you have failed to meet your provisional tax obligations, it is best to contact your tax practitioner immediately. They will be able to assist with the submission of any outstanding returns, and in certain cases where circumstances justify late submission, for example severe illness, traumatic personal events, financial hardship etc, motivate for the waiver or reduction of penalties.

The sooner the better

The settlement of all outstanding amounts due at the earliest date prevents further interest accruing. There is no time like the present for sorting out non-compliance, as harsh penalties and interest can potentially create a financial burden that may leave a taxpayer unable to meet future provisional and annual tax obligations thus creating a circle of non-compliance that can be hard to break out of. Swift action on the part of the taxpayer and practitioner can avoid this.

For more information contact Jeremy Burman, a director of Private Client Financial, the specialist tax and financial services division of Private Client Holdings on (021) 671 1220.


Submit a Comment

Your email address will not be published. Required fields are marked *

Maya Fisher-French author of Money Questions Answered

Previous Articles

Funeral policy fraud on the increase

When fraudsters access your personal information, they can use this information to take out a funeral policy in your name, and then claim benefits on the policy using a fake death certificate and other supporting documentation. “Finding out you are the victim of a...

SARS issues guidance on crypto assets

On 27 August 2021, SARS provided further guidance on the correct tax treatment of crypto assets and how this must be declared in people’s tax returns. SARS published a document on its website entitled Crypto Assets & Tax. The publication should perhaps best be...

Self-service facility for GEPF members

Technology is making it easier for GEPF members and pensioners to keep track of their pension information and claims process. By downloading the new GEPF self-service mobile app onto your device, you can remove the frustration of standing in long queues at GEPF...

Video: Being rich vs being wealthy

In his book The Psychology of Money, Morgan Housel writes about the difference between being rich and being wealthy. He defines riches as an income you earn, because that allows you to take on the debt to buy that R800 000 car or R40 000 handbag. Wealth on the other...

High-risk land investment leaves angry investors out of pocket

Many South African investors who bought UK property developments through SA-based property marketing company SJ Capital, have seen no returns for over 11 years. Investigations have found that the investment is extremely high risk and that investors were not fully...

Listen: Top tips for financially savvy kids

Maya (@mayaonmoney) chats to certified financial planner Gugu Sidaki (@gugusidaki) about ways to skill our children so that they can better manage money as adults. Gugu is author of My 3 Piggies, a series of books for kids all about money. Also listen to this podcast,...

Treasury’s solution to early withdrawal

As part of its ongoing retirement reform process, National Treasury is proposing the introduction of a two-bucket retirement system to provide for shorter and longer-term needs. John Anderson, executive at Alexander Forbes, says it may work along the same percentages...

Video: Marriage and money

When couples marry, including Customary Marriage, they will automatically be married under community of property, unless they sign a separate antenuptial contract. This is seen as a way to protect women, especially those who stay at home to raise the family. The term...

The NSSF will not meet the needs of South Africans

While noble in its aim, the establishment of a National Social Security Fund (NSSF) is largely unworkable. In August, the department of Social Development issued a Green Paper on Comprehensive Social Security and Retirement Reform, which outlined a “super fund” to...

Life insurers see a 44% jump in death claims

Death claims statistics released recently by the Association for Savings and Investment South Africa (ASISA) have shown a massive 44% jump in lives lost with an overall increase of 64% in the value of claims paid compared to the previous year. Between 1 April 2020 and...

Pin It on Pinterest

Share This