If you own a business, earn rental income, or run a sole proprietorship, SARS expects you to pay tax twice a year — not once at the end. That’s provisional tax. And it catches more SME owners off guard than almost any other tax obligation.
Here’s what you actually need to know.
Who is a provisional taxpayer?
You’re a provisional taxpayer if you earn income that isn’t subject to PAYE. That includes:
- Companies and close corporations (automatically)
- Sole proprietors and partners with business income
- Anyone earning rental, freelance, consulting, or investment income above the local interest exemption
- Directors drawing dividends or director’s fees alongside other untaxed income
If your only income is a salary that already has PAYE deducted, you’re usually not a provisional taxpayer. The moment you add a side business or rental property, you probably are.
The two payments (and the optional third)
For a February year-end, the cycle works like this:
- First payment — due 31 August. Based on your estimated taxable income for the full year. At minimum, it must cover half of the year’s estimated tax.
- Second payment — due the last business day of February. Tops up to the full year’s estimated liability, less what you paid in August.
- Optional third (top-up) — due 30 September. Used to settle any shortfall before SARS starts charging interest at the prescribed rate (currently 10.25%).
Miss a date and the penalties stack up fast.
The “basic amount” — your safety net
SARS gives you a default estimate to work with: your last assessed taxable income, adjusted upward by 8% if more than 18 months have passed since that assessment. Using the basic amount protects you from under-estimation penalties on the first payment.
But it’s a blunt tool. If your business has grown significantly, using the basic amount means you’ll face a big shortfall in February — and possibly interest.
The 80% rule that trips people up
For the second payment, if your taxable income for the year is more than R1 million, your estimate must be at least 80% of your actual taxable income. Under-estimate, and SARS charges a 20% penalty on the shortfall.
If your taxable income is R1 million or less, the rule is gentler — your estimate must be at least 90% of actual, or equal to the basic amount.
In practice, this means: as your business grows past R1 million in taxable income, your February estimate needs to be much sharper. Guesswork doesn’t cut it.
Where SMEs go wrong
The patterns we see most often:
- Treating provisional tax as optional. It’s not. Late submissions trigger admin penalties even if there’s no tax due.
- Forgetting February’s payment exists. January and February are busy months. The payment gets pushed and the 10% late payment penalty hits.
- Under-estimating to ease cash flow. Tempting, but the under-estimation penalty plus interest usually costs more than just paying the right amount.
- Not setting cash aside monthly. A surprise R150,000 bill in February breaks more SMEs than slow trading does.
The simple fix
Two habits cover 90% of provisional tax stress:
- Run an interim management account in July and January. Estimate taxable income based on real numbers, not last year’s figures.
- Park 25–28% of profit in a separate account every month. When the payment is due, the money is already there.
Need a hand?
Provisional tax is one of those areas where getting it slightly wrong costs real money, and getting it right is mostly about good information and timing. If you’d like us to handle the calculation, submission, and reminders so you can focus on running the business, get in touch — it’s bread-and-butter work for us.
