February 2025 is an important deadline for provisional taxpayers in South Africa. The second provisional tax payment is due, and whether you’re running a business or earning income as an individual, it’s important to understand how to calculate your tax accurately and avoid penalties or interest.
In this blog post, we’ll guide you through calculating provisional tax for businesses and individuals, provide detailed examples, and explain how penalties and interest work.
What Is Provisional Tax?
Provisional tax is not a separate tax but a system that ensures certain taxpayers pay their income tax in advance based on estimated taxable income. Payments are due twice a year:
First Payment: August 2024.
Second Payment: February 2025.
Optional Third Payment: September 2025 (to cover any shortfalls).
Who needs to pay provisional tax?
Businesses: Companies, close corporations, and trusts.
Individuals: Freelancers, small business owners, and landlords earning non-PAYE income.
Small Business Corporations (SBCs): Businesses meeting SARS’s SBC criteria, which benefit from reduced tax rates.
How to Calculate Provisional Tax
For Businesses (Standard Companies)
Estimate Taxable Income:Total income earned (March 2024 to February 2025) minus allowable business expenses.
Apply the Corporate Tax Rate:Corporate tax rate: 27%.
Deduct Previous Payments:Subtract the first provisional payment (August 2024) and PAYE already paid (if applicable).
Example for a Standard Company:
Let’s assume your business has an estimated taxable income of R1,200,000 for 2024/2025:
Step 1: Calculate tax liability: R1,200,000×27%= R324,000
Step 2: Subtract the first provisional payment: First payment = R150,000.
R324,000−R150,000=R174,000
The second provisional payment due in February 2025 is R174,000.
For Small Business Corporations (SBCs)
SBCs enjoy reduced tax rates if they meet SARS requirements, including having a gross income below R20 million and meeting shareholding and activity restrictions.
2024/2025 SBC Tax Table:
0% on the first R95,750.
7% on income above R95,750 up to R365,000.
21% on income above R365,000 up to R550,000.
27% on income exceeding R550,000.
Example for an SBC:
An SBC estimates taxable income of R600,000 for the 2024/2025 tax year:
Step 1: Calculate tax liability using the SBC tax table:
First R95,750: Tax = 0%.
Next R269,250 (R365,000 - R95,750): R269,250×7%=R18,847.50
Next R185,000 (R550,000 - R365,000): R185,000×21%=R38,850
Remaining R50,000 (R600,000 - R550,000): R50,000×27%=R13,500
Total tax liability = R18,847.50+R38,850+R13,500=R71,197.50
Step 2: Subtract the first provisional payment: If the SBC paid R35,000 in August: R71,197.50−R35,000=R36,197.50
The second provisional payment due in February 2025 is R36,197.50.
For Individuals
Estimate Taxable Income:Include freelance income, rental income, investments, and other income streams. Deduct allowable expenses and tax-deductible contributions.
Apply SARS Personal Tax Rates:Use the personal tax brackets for 2024/2025.
Deduct PAYE and Rebates:Subtract PAYE paid and applicable rebates (e.g., primary rebate: R17,235).
Example for an Individual:
A freelancer estimates taxable income of R750,000:
Step 1: Calculate tax liability using SARS tax brackets:Tax on R750,000 = R148,217.
Step 2: Subtract rebates: R148,217−R17,235=R130,982
Step 3: Subtract PAYE and first provisional payment: If PAYE paid = R20,000 and first provisional payment = R50,000: R130,982−(R20,000+R50,000)=R60,982
The second provisional payment due in February 2025 is R60,982.
Penalties and Interest
Penalties for Underestimation
Underpayment Penalty:
A 20% penalty applies if your provisional tax payments cover less than 90% of your actual tax liability and are less than the basic amount (last year’s taxable income, adjusted for inflation).
Non-Submission Penalty:
Failing to submit your provisional tax return incurs further penalties.
Example of Penalty Calculation: A business estimated taxable income of R1,000,000 but actual taxable income was R1,500,000:
Actual tax liability: R1,500,000×27%=R405,000
Provisional payments made: R300,000.
Shortfall: R405,000−R300,000=R105,000
The penalty is: 20%×R105,000=R21,000
Interest
SARS charges interest on underpaid tax from the due date until the shortfall is paid. Interest is based on the prime lending rate and compounds monthly.
How to Avoid Penalties
Accurate Estimations:
Update income projections regularly and use the basic amount if income is stable.
Third Payment Option:
Make a voluntary top-up payment in September 2025 to cover any shortfalls.
Professional Advice:
Work with a tax practitioner to ensure accurate calculations and compliance - Contact HM Accounting
Calculating provisional tax accurately is essential to avoid unnecessary penalties and interest. Whether you’re a business or an individual, understanding the calculation process and staying compliant with SARS requirements can save you money and stress.
Need help with your provisional tax submissions? HM Accounting specializes in assisting businesses and individuals with tax planning, submissions and compliance. Let us simplify the process so you can focus on what you do best!
Contact us today for expert assistance!
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