Provisional tax: who has to pay it, and how the estimate actually works

Provisional tax is not a separate tax. It is a way of paying income tax in instalments during the year, instead of one large amount after assessment.

It catches people out for two reasons. The first payment falls due before the year has ended, so you are paying tax on income you have not finished earning. And the penalty regime punishes a bad estimate, not just a late payment.

Who is a provisional taxpayer

Broadly, you are a provisional taxpayer if you earn income that does not have PAYE deducted from it. In practice that usually means:

• Anyone carrying on a trade in their own name — sole proprietors, freelancers, consultants, contractors
• Individuals with rental income, or with interest and investment income above the exemption
• Directors and shareholders drawing income outside a payroll
• All companies and close corporations
• Most trusts

A salaried employee whose only other income is small investment returns is generally not a provisional taxpayer. If you have any doubt, the consequence of getting it wrong is penalties, so it is worth confirming.

The dates for a February year-end

How the first payment is calculated

For the first period you estimate your taxable income for the full year, calculate the tax on it, and pay half. Employees' tax already deducted and any foreign tax credits come off that figure.

SARS gives you a floor to work from called the basic amount: the taxable income from your most recently assessed return. If that assessment is more than 18 months old, the basic amount is increased by 8% a year.

For the first payment you may use the basic amount without needing to justify it. That is the safe default when the current year is genuinely hard to predict.

The second payment is where the risk sits

At the second payment you settle up: you estimate the full year's taxable income, calculate the tax, and pay the balance after deducting the first payment and any PAYE.

This is the estimate SARS tests. Under-estimate it materially and an underestimation penalty of 20% applies to the shortfall. The thresholds work like this:

• Taxable income of R1 million or less: your estimate must be at least 90% of the actual figure, or at least equal to the basic amount. Meeting either test is enough.
• Taxable income above R1 million: the basic amount is no longer a shelter. Your estimate must be at least 80% of the actual figure.

Paying late attracts a separate 10% penalty, plus interest. The two are not alternatives — a late and understated payment attracts both.

The third payment is voluntary, and usually worth making

If the second payment left you short, a voluntary top-up by 30 September stops interest running on the outstanding amount. It does not undo an underestimation penalty, but it limits the interest, and interest on an underpayment is not deductible.

Practical points

Do the estimate properly at the second payment. By the end of February you have eleven months of real numbers. There is very little excuse for a wild estimate, and SARS knows it.

Set the money aside as you earn it. The most common reason a provisional payment is late is not disagreement with the amount. It is that the cash has already been spent.

File a nil return if you owe nothing. An IRP6 with no liability still has to be submitted. A missing return is an administrative non-compliance matter in its own right.

Watch the auto-assessment change. For the 2026 filing season SARS extended auto-assessments to some provisional taxpayers for the first time. Receiving one does not change your provisional obligations for the current year.

If you cannot pay

File anyway. Late filing and late payment are penalised separately, and a payment arrangement is far easier to negotiate on a return that has been submitted. SARS will generally engage on an instalment arrangement where the liability is properly declared.

If your first payment is due and you are not sure the estimate holds up, talk to us before 31 August rather than after.