Provisional Tax in South Africa: Who Pays It and When

Provisional tax is the SARS obligation that blindsides more new business owners than any other. You start a company or begin earning rental or freelance income, nobody tells you about IRP6 returns, and eighteen months later there's a penalty notice. Here's how provisional tax actually works, who it applies to, and how to never get caught by it.

What Provisional Tax Is (and Isn't)

Provisional tax is not a separate tax — it's a method of paying your normal income tax in advance, in instalments, instead of one lump sum on assessment. It exists because PAYE only covers salary income; if you earn income that isn't taxed at source, SARS wants its share during the year, not a year later.

Who Must Pay It

• All companies — every company is automatically a provisional taxpayer.
• Individuals with non-salary income — business profits, freelance and commission income, rental income, and significant interest or investment income above the exempt thresholds.

Salaried employees whose only income is their salary are generally not provisional taxpayers — PAYE covers them.

The Two (Sometimes Three) Payments

1. First period (IRP6/1) — due six months into your tax year (end of August for a February year-end). You estimate your full-year taxable income and pay half the tax on that estimate.
2. Second period (IRP6/2) — due at the end of your tax year (end of February for most). You refine the estimate and pay the balance.
3. Third "top-up" (voluntary) — an optional payment about six to seven months after year-end to stop interest running on any shortfall before assessment.

The Underestimation Trap

The second-period estimate is where the money is lost. If your taxable income ends up above certain thresholds and your estimate was too low relative to what SARS's rules require, an underestimation penalty of up to 20% of the shortfall can apply — plus interest. The safe harbours differ depending on whether your taxable income is above or below R1 million, and the rules reference your last assessed year ("basic amount"), which is exactly why guessing is dangerous.

The practical fix is unglamorous: keep your books current. When your management accounts are reconciled monthly, your provisional estimate is a calculation, not a guess — and February stops being a panic.

Common Mistakes

• Filing a nil first-period return "to deal with it later" — the shortfall plus penalties lands in period two.
• Forgetting that a dormant company still needs to file IRP6 returns.
• Using last year's numbers in a year where the business grew sharply — the estimate must reflect current reality.
• Missing the deadline entirely — a late payment is treated as a nil estimate in the worst cases, maximising penalties.

PayStream calculates and files both provisional periods from your actual books as part of our tax compliance service — integrated with your monthly accounting, so the estimate is always grounded in real numbers.

Frequently Asked Questions