Provisional tax is where growing businesses get hurt by their own success. Under-estimate on the second provisional and SARS charges up to 20% under paragraph 20; skip the third top-up and you pay section 89quat interest at the prescribed rate compounded from year-end. We prepare defensible IRP6 estimates from live year-to-date numbers and plan the cash flow so both problems disappear.
Every company, close corporation and trust is automatically a provisional taxpayer, regardless of size or profit. An individual is provisional if they earn taxable income from any source other than remuneration — freelance income, rental, business trading, interest above R23,800 (or R34,500 if 65+), or foreign dividends. Salaried employees whose only extra income falls below the de minimis limits are not.
The first IRP6 is due six months into the tax year — for a February year-end that is the last working day of August. It is calculated on the 'basic amount' (the last assessed year uplifted by 8% per year older than 18 months) unless the taxpayer legitimately estimates a lower figure. Half of the estimated annual tax is paid, less any employees' tax already withheld.
The second IRP6 is due on the last working day of the tax year and is the estimate that matters most. If your P2 estimate falls below 80% of actual taxable income (or 90% for taxpayers with taxable income over R1 million), paragraph 20 of the Fourth Schedule imposes an under-estimation penalty of up to 20% of the shortfall in tax. We build P2 estimates from the year-to-date general ledger and a forecast for the remaining month, not from a guess.
For February year-ends, a voluntary third payment made by 30 September stops the section 89quat interest clock. This is the difference between paying SARS interest for six to twelve months after year-end and paying nothing. For provisional taxpayers with strong final-quarter performance the P3 pays for itself many times over.
Every IRP6 we file comes with a short cash-flow note: how much needs to be in the SARS payment account, when, and where the shortfall (if any) is going to come from. Provisional tax is the single biggest quarterly cash outflow most SME directors face — planning it three weeks ahead is the difference between calm and crisis.
Common questions about provisional tax (irp6) in South Africa.
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