The current announcement that the deadline for provisional taxpayers has been introduced ahead to 23 January 2023 is causing confusion.
Some taxpayers have mistaken this to imply that their second provisional tax submission is due sooner this yr, however that is incorrect.
In reality, it’s their annual earnings tax return that’s due on 23 January as an alternative of 30 January – seven days sooner than regular. However, their second provisional tax submission and fee remains to be due on or earlier than the final enterprise day of February 2023.
The shut relationship between annual earnings tax and provisional tax makes this type of misunderstanding straightforward, particularly if such bulletins are usually not rigorously worded.
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Provisional vs annual earnings tax
Non-provisional taxpayers ought to have submitted their annual earnings tax returns between 1 July and 24 October 2022. They due to this fact declared their annual employment earnings after having earned it within the earlier tax yr; that’s, between 1 March 2021 and 28 February 2022.
A provisional taxpayer, however, is anybody outlined in paragraph 1 of the Fourth Schedule of the Income Tax Act, No 58 of 1962, as any:
- pure one who derives earnings, apart from remuneration or an allowance or advance as talked about in part 8(1) or who derives remuneration from an employer who isn’t registered for workers’ tax.
In different phrases, any one who receives earnings (or to whom earnings accrues) apart from a wage is taken into account a provisional taxpayer.
Unlike employment-only taxpayers, provisional taxpayers are given extra time to reconcile and declare their whole private earnings from each employment and non-employment sources.
They have from 1 July 2022 till 23 January 2023 to submit their annual tax returns and pay tax on all earnings earned between 1 March 2021 and 28 February 2022.
A second tax – misunderstanding
Provisional tax isn’t a separate tax however types a part of the taxpayer’s private earnings tax obligation.
This is the place issues get difficult. While private earnings tax is asserted in respect of the previous tax yr, provisional tax is asserted within the present tax yr wherein the non-employment earnings is earned.
Provisional taxpayers declare their full earnings twice annually:
- The first provisional submission is made earlier than 31 August, and
- The second provisional submission is made earlier than the tip of February within the following calendar yr.
The funds on these first and second submissions are then consolidated into the provisional taxpayer’s eventual declaration of their whole private earnings of their annual tax submission.
This implies that, for the 2022/23 tax yr, provisional taxpayers ought to have made their first declaration of their earnings by 30 August 2022 and can make their second declaration on or earlier than 28 February 2023.
The fee of the tax on that earnings will then be deducted from the tax calculated on the full private earnings they declare in January 2024.
PAYE for non-employment earnings
According to the South African Revenue (*23*) (Sars), provisional tax ensures that taxpayers with sources of non-employment earnings don’t fall behind on their tax funds.
Employees have the Pay As You Earn (PAYE) system to guard them. Every month, employers calculate and withhold tax on the earnings every worker obtained that month in relation to their annual earnings. This withheld tax have to be paid over to Sars inside seven months of the month wherein it was deducted.
At the tip of the yr, what the employed taxpayer has already paid to Sars by means of PAYE is mirrored on their IRP5 certificates and this ‘prepaid’ quantity is subtracted from their whole calculated tax obligation.
Provisional tax achieves the identical consequence for taxpayers with earnings obtained not topic to PAYE, as their tax can’t be administered by an employer.
It due to this fact helps the taxpayer regulate their very own tax obligation, and keep away from ending up in debt to Sars.
Read: Sars disallowed over 60% of dwelling workplace claims final yr
Being particular
The relationship between annual earnings tax and provisional earnings tax could make it complicated to separate the 2 methods, as a consequence of this not being a separate tax however somewhat a fee processing instrument. This is precisely what occurred as some information retailers didn’t clearly specify which of the 2 deadlines had been moved ahead.
To reiterate, it’s the provisional taxpayer’s annual earnings tax – not their second provisional tax submission – that’s due by 23 January 2023.
Provisional taxpayers can breathe a sigh of aid, figuring out that they are going to be underneath no extra strain than standard to satisfy their provisional tax obligation.
Nicolas Botha is tax workforce compliance and processing supervisor at Tax Consulting South Africa.
