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How to complete your 2nd provisional tax for companies

Following on from my most recent blog on Provisional tax and with the deadline of submission for the 2nd provisional tax return and payment around the corner, I provide some further insight and tips on how and what to do when it comes to your 2nd provisional tax return and payment.

Companies automatically fall into the provisional tax system; thus it is important that you are compliant by ensuring your provisional tax return is submitted timeously to SARS and that you are not under-estimating your taxable income in order to avoiding penalties being charged between the actual taxable income and the estimation on the second provisional tax return.

Any provisional tax return that under-estimates the taxable income by a certain amount is subject to 20% penalties, and any late payment is subject to 10% penalties. It is therefore really important to take the 2nd provisional tax return seriously and get advice from a tax consultant if required.

The second provisional payment must be made to SARS by no later than the last working day of the year of assessment ending 29 February 2024 for company taxpayers.

What steps should you take to work out the amount of provisional tax due?

he calculation of your company’s tax liability is subject to the applicable tax rates to your business.

For example, if your business qualifies as a small business corporation (SBC) – see the tax table below – you will be taxed according to those applicable tax tables.

Alternatively, you will probably be taxed at the normal flat rate of 27% for years of assessment on or after 31 March 2023 on your company’s net profits.

The second provisional tax payment is calculated as follows:

  • Estimate the taxable income for the year of assessment.

  • This is done by determining your company’s profit or loss.

  • Take into account any relevant tax adjustments in order to arrive at the corporate taxable income for the year.

  • Calculate estimated tax liability by applying the relevant tax tables for SBC’s or the flat corporate income tax rate of 27%.

  • Subtracting the first provisional tax payment made.

Tax table for SBC (Financial Years ending on or after 31 March 2023)

How to work out the amount of provisional tax due?

  1. Always ensure your accounting is up to date monthly as your financial statements are used to determine figures to calculating your tax liability.

  2. Refer to your year to date income statement and estimate your revenue, cost of sales and operating expenses for the remaining month’s up to and including February 29th in order to obtain the taxable income for the full year of assessment.

  3. Consider once-off transactions that may occur i.e. any future income expected from big contracts towards the end of the year.

  4. Adjust for non tax related items i.e. depreciation; wear and tear; doubtful debts, leave pay accruals etc.

  5. Apply relevant tax tables if qualified as an SBC or the flat corporate income tax rate of 27%

  6. Deduct the 1st provisional tax payment

  7. Populate your return on SARS E-filing

An example of Provisional Tax return (IRP6)

Penalty on underestimation of 2nd provisional tax return

The penalty amount depends on whether the actual taxable income is more or less than R1 million.

More than a R1 million

If taxable income for the year of assessment is less than 80% of actual taxable income declared on your annual tax return, 20% penalty will be levied on the difference between the amount of tax payable on 80% of actual taxable income, after taking into account rebates in the determination of normal tax payable, employees tax and provisional tax paid.

Less than R1 million

If taxable income for the year of assessment is less than 90% of actual taxable income as finally determined; and the basic amount applicable to the second period, the amount of the penalty is 20% of the difference between the lesser of the amount of normal tax payable for the year of assessment on 90% of actual taxable income as finally determined; and the amount of normal tax payable for the year of assessment on the basic amount applicable to the second period.

Penalty on late payment of 2nd provisional tax return

  • There is a 10% penalty that is levied on late payments.

  • A penalty imposed on underestimation of actual taxable income on the second period; is reduced by the penalty imposed for the late payment of provisional tax.

  • The Commissioner may remit the whole or any part of the penalty if satisfied that the failure to submit an estimate timeously was not due to intent to evade or postpone the payment.