Provisional Tax in South Africa: What Businesses Need to Know (and What to Do in January)
Provisional tax is one of those things that sounds optional until SARS reminds you it very much isn't.
Every January, we see the same pattern at Rae & Associates: business owners scrambling, estimates done at the last minute, penalties piling up, and cash flow taking an unnecessary knock that could have been completely avoided with proper planning.
The problem isn't that provisional tax is complicated—it's that most businesses don't understand it until they're already behind. By then, you're reacting instead of planning, and that's when costly mistakes happen.
Let's slow it down and break it down properly.
This comprehensive guide explains what provisional tax is, who needs to pay it, how the system works, and most importantly, what companies should be doing in January to stay ahead of SARS and avoid penalties.
What Is Provisional Tax?
Provisional tax is not an extra tax. It's a pay-as-you-earn system for income that doesn't have tax automatically deducted at source.
Instead of getting hit with one massive tax bill at year-end, SARS requires certain taxpayers to make advance payments throughout the year based on their estimated taxable income. These payments are submitted via an IRP6 return and are later offset against your final income tax assessment.
Think of it as tax instalments spread across the year, not a bonus bill on top of your regular tax obligations.
The Logic Behind Provisional Tax
SARS wants to collect tax throughout the year rather than waiting until your annual return is filed. This achieves two things:
Government cash flow: SARS receives regular tax revenue throughout the year
Taxpayer cash flow: You avoid a single crushing tax payment at year-end
When managed properly, provisional tax actually helps with financial planning. When ignored or mismanaged, it creates cash flow crises and penalty nightmares.
Who Must Pay Provisional Tax?
You are likely a provisional taxpayer if you earn income that isn't fully taxed at source—meaning tax isn't automatically deducted before you receive payment.
This Includes:
Companies and Close Corporations
All companies registered in South Africa are provisional taxpayers, unless specifically exempted by SARS. No exceptions, no negotiations.
Sole Proprietors and Freelancers
If you earn business income, professional fees, or consulting income outside of a PAYE salary, you're a provisional taxpayer.
Directors and Shareholders
Even if you receive a salary with PAYE deducted and earn additional income like dividends, rental income, director's fees, or consulting income, you're a provisional taxpayer.
Trusts
Most trusts are required to submit provisional tax returns, particularly trading trusts or trusts with investment income.
Individuals with Investment Income
If you earn significant investment income (interest, dividends, rental income) beyond what's covered by PAYE, provisional tax applies.
Who Is Exempt?
You're generally exempt if:
Your only income is a salary with PAYE deducted
You're a natural person earning less than R1 million per year with minimal non-PAYE income
SARS has granted you specific exemption
When in doubt, assume provisional tax applies. The consequences of not paying when you should are far worse than unnecessarily preparing an IRP6.
How Provisional Tax Works: The Timeline
Provisional tax is paid in two compulsory periods during your financial year, with an optional third top-up payment after year-end.
First Provisional Payment
Due: 6 months into your tax year
For February year-ends: End of August
For December year-ends: End of June
For other year-ends: 6 months into your specific financial year
What you pay: An estimate of your total taxable income for the year
Second Provisional Payment
Due: On the last day of your tax year
For February year-ends: End of February
For December year-ends: End of December
For other year-ends: Your specific financial year-end date
What you pay: An updated estimate based on actual performance through 6-12 months
Third (Optional) Voluntary Payment
Due: Within 6 months after your financial year-end
For February year-ends: End of August (the following year)
For December year-ends: End of June (the following year)
Purpose: To reduce or eliminate interest charges if your second provisional estimate was too low
Each submission is done using an IRP6 form through SARS eFiling, based on your estimated taxable income for the full year.
Why January Is Critical for February Year-End Companies
If your company has a February year-end (like most South African businesses), January is where smart tax planning either happens or falls apart.
It's not because provisional tax is due immediately—it's because your second provisional payment deadline of 28 February depends entirely on how accurate your financial numbers are right now.
Here's What Often Goes Wrong in January:
❌ Books aren't updated after the December rush
❌ Year-end estimates are rushed and inaccurate
❌ Income is understated to preserve short-term cash
❌ Legitimate deductions are missed
❌ Cash flow isn't planned for the February payment
❌ SARS penalties and interest follow in the months ahead
January is your window to fix all of this. It's your last chance to ensure accuracy, plan cash flow, and optimize your tax position before the February deadline hits.
What Companies Must Do in January: The Essential Checklist
This is where most businesses either save substantial money or lose it unnecessarily. Here's your complete January provisional tax action plan:
1. Finalize and Clean Up Your Books Completely
Before you estimate anything for SARS, your financial numbers must be current and accurate.
In January, you must:
Capture all December transactions (sales, expenses, payments)
Complete all bank and credit card reconciliations
Review aged debtors and creditors for accuracy
Correct any misallocated expenses or income
Verify that all opening balances are correct
Clear any outstanding queries or discrepancies
Why this matters: If your books are messy, your provisional tax estimate will be wrong. Guaranteed. And SARS doesn't care about "we were busy" as an excuse for inaccurate estimates.
2. Review Year-to-Date Profit Accurately
Provisional tax is based on taxable income, not cash in the bank or even accounting profit.
What you should analyze:
Review actual profit year-to-date
Look at your management accounts from March through December. What did you actually earn?
Adjust for once-off items
Did you have unusual income or expenses that won't repeat? Major capital purchases? Once-off contracts? These affect your estimate.
Consider timing differences
Some expenses are paid but not immediately deductible. Some income is earned but not yet taxable.
Identify non-deductible expenses
Entertainment, penalties, certain donations—these come out of profit but don't reduce taxable income.
Review allowable deductions
Depreciation, section 11 expenses, retirement contributions—ensure you're claiming everything you legally can.
This is where having proper accounting support makes a massive difference. A good bookkeeper or accountant knows which adjustments matter for tax purposes.
3. Evaluate Your First Provisional Estimate from August
Many businesses under-estimate in their first provisional payment just to preserve cash flow. While understandable, it creates problems down the line.
In January, ask yourself:
Was the August estimate realistic given actual performance?
Has income significantly exceeded expectations?
Are we at risk of SARS penalties for under-estimation?
Do we need to make a substantial catch-up payment in February?
Critical rule to remember: If your second provisional payment is less than 80% of your actual taxable income, SARS can impose penalties and interest. This is not optional—it's automatic.
4. Plan Cash Flow for the February Payment
Provisional tax is not negotiable. The payment must be made. But cash flow planning absolutely is negotiable—and it should happen now, not on 25 February when you're scrambling.
Your January cash flow planning should include:
Calculate your realistic provisional tax liability
Forecast your cash position through February
Ring-fence funds specifically for the tax payment
Identify if you need to delay other payments or accelerate collections
Consider if a payment plan with SARS makes sense (before you're late)
Proactive planning beats reactive panic every single time. Businesses that plan their provisional tax payments rarely face cash flow crises. Businesses that ignore it until the deadline always do.
5. Look for Legitimate Tax Optimization Opportunities
January is still early enough in the tax cycle to make strategic moves that reduce your taxable income legally.
Depending on your business, opportunities might include:
Asset purchases and depreciation
Buying equipment before year-end can generate significant tax deductions through capital allowances.
Retirement annuity contributions
Directors and owners can make personal or company retirement contributions that reduce taxable income.
Bonus and dividend structuring
The timing and structure of year-end bonuses or dividend declarations can affect current year tax.
Director remuneration review
Ensure director fees and salaries are structured optimally for both company and personal tax.
Bad debt write-offs
If you have genuinely irrecoverable debts, write them off before year-end for a legitimate deduction.
Expense timing
Some expenses can be accelerated into the current year if payment happens before year-end.
This is strategic tax planning, not tax avoidance. SARS is very clear on the difference, and so are we. Everything must be legitimate, documented, and compliant.
Common Provisional Tax Mistakes That Cost Businesses Real Money
These errors happen every tax season—and they're completely avoidable:
Mistake #1: Guessing Income Instead of Calculating It
The problem: "I think we'll make about R2 million this year" is not an estimate—it's a guess.
The solution: Use actual year-to-date numbers, adjust for known changes, and calculate properly.
Mistake #2: Ignoring Provisional Tax Until the Last Week of February
The problem: You can't make good estimates, plan cash flow, or optimize tax in three days.
The solution: Start the process in early January when you have time to get it right.
Mistake #3: Assuming SARS Auto-Assessments Are Accurate
The problem: SARS often bases estimates on prior year income, which may be completely irrelevant.
The solution: Always review SARS estimates critically and submit your own IRP6 if theirs is wrong.
Mistake #4: Not Updating Estimates When Income Changes Significantly
The problem: If your income is 50% higher than expected but you don't revise your estimate, penalties follow.
The solution: Monitor performance and adjust your second provisional estimate accordingly.
Mistake #5: Treating Provisional Tax as Optional or Flexible
The problem: "We'll pay it when cash flow improves" doesn't work with SARS.
The solution: Treat provisional tax deadlines as non-negotiable and plan accordingly.
Mistake #6: Under-Estimating to Preserve Cash
The problem: Saving R50,000 in February costs you R60,000+ in penalties and interest by September.
The solution: Pay accurately or use the third voluntary payment option to true up later.
SARS penalties for under-estimation can be severe, and interest compounds monthly. It's almost always cheaper to pay accurately upfront than to deal with penalties later.
What Happens If You Get Provisional Tax Wrong?
SARS doesn't negotiate when it comes to provisional tax compliance. If your estimates are too low or payments are late, consequences are automatic:
Potential Penalties and Consequences:
Under-Estimation Penalties
If your second provisional estimate is less than 80% of actual taxable income, SARS imposes a penalty of 20% of the difference between what you should have paid and what you did pay.
Late Payment Penalties
Missing the payment deadline results in a 10% penalty on the outstanding amount, immediately.
Interest on Outstanding Tax
SARS charges interest (currently around 10.25% per annum) on any underpaid tax from the due date until payment.
Administrative Non-Compliance Penalties
Failing to submit an IRP6 when required results in fixed penalties ranging from R250 to R16,000 per month depending on taxable income.
Cash Flow Impact
Penalties and interest create additional cash outflows exactly when you can least afford them—often during the following year's tax season.
And no, "cash flow was tight" doesn't count as a valid excuse to SARS. They've heard it before, and it doesn't reduce penalties.
The Third Voluntary Payment Option
If you realize your second provisional estimate was too low, you have one opportunity to fix it without penalties:
Submit a third voluntary payment within 6 months of year-end (by 31 August for February year-ends). This payment can increase your total provisional tax to avoid or reduce interest charges.
While you'll still pay some interest, it's significantly less than the penalties and full interest that apply without the voluntary payment.
How Rae & Associates Helps Businesses With Provisional Tax
At Rae & Associates, provisional tax isn't handled in isolation as a compliance task. It's integrated into your comprehensive financial planning and management.
How We Support Our Clients:
Year-Round Accurate Bookkeeping
Your books are current every month, so January estimates are based on real data, not guesswork.
Realistic Provisional Tax Calculations
We prepare accurate IRP6 submissions based on actual performance and proper tax adjustments.
Strategic Tax Planning
We identify legitimate opportunities to reduce taxable income through timing, structuring, and allowable deductions.
Cash Flow Planning Around Deadlines
We help you plan for tax payments months in advance, so February never catches you off guard.
Proactive Communication
We remind you of deadlines, explain your tax position in plain language, and keep you informed throughout the year.
SARS Liaison When Needed
If disputes, queries, or payment arrangements are necessary, we handle communication with SARS on your behalf.
Penalty Avoidance
Most importantly, we help you avoid surprises, penalties, and interest by getting it right the first time.
What Makes Our Approach Different:
We don't just calculate numbers and submit forms. We help you understand your tax position, plan strategically, and make informed decisions that benefit your business long-term.
Our clients sleep better knowing their provisional tax is handled properly, their cash flow is planned, and they're never surprised by SARS penalties or unexpected tax bills.
Your January Provisional Tax Action Plan
If you're reading this in January and your company has a February year-end, here's exactly what you should do this month:
Week 1-2 of January:
Finalize all December bookkeeping
Complete bank reconciliations
Review year-to-date financials
Week 2-3 of January:
Calculate realistic taxable income estimate
Review first provisional payment adequacy
Identify tax optimization opportunities
Week 3-4 of January:
Prepare IRP6 submission
Plan cash flow for February payment
Consult with your accountant or tax advisor
Before 28 February:
Submit IRP6 via SARS eFiling
Make payment through eFiling or bank
Keep proof of submission and payment
Don't wait until the last week of February. Give yourself time to get it right, plan properly, and avoid the stress of last-minute scrambling.
Final Thoughts: Provisional Tax as a Planning Tool
Provisional tax isn't just a SARS requirement that you begrudgingly comply with. When approached correctly, it's actually a valuable planning tool that forces you to review your financial position, understand your profitability, and plan your cash flow strategically.
January is the month where South African businesses either take control of their tax position or fall behind for the entire year ahead.
If your books aren't up to date, your estimates are rushed, you're unsure whether your numbers are realistic, or you're feeling stressed about the February deadline—that's your clear signal to get professional support now, not in three weeks when it's too late.
Because when it comes to provisional tax, the real cost isn't the tax itself. It's the penalties, interest, and cash flow chaos that result from getting it wrong.
Get it right in January, and the rest of the year becomes significantly easier.
Frequently Asked Questions About Provisional Tax
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You'll face an immediate 10% late payment penalty, plus interest at around 10.25% per annum on the outstanding amount. Additionally, SARS may impose administrative non-compliance penalties. It's almost always worth paying on time, even if it strains cash flow temporarily.
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Yes. Your second provisional payment should reflect your realistic expectation of year-end taxable income. If business is genuinely slower, adjust your estimate downward—but be conservative. Under-estimating by too much triggers penalties.
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SARS often bases auto-assessments on prior year figures or incomplete information. You are not obligated to accept it. Submit your own IRP6 with accurate estimates instead. Always review SARS estimates critically.
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Your estimate should be based on actual year-to-date performance, adjusted for known changes and tax-specific items like depreciation and non-deductible expenses. When in doubt, consult a professional—getting it wrong costs far more than getting help.
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SARS does allow payment arrangements in some cases, but you must apply before the deadline, not after. Late payment still triggers penalties, but arrangements can help manage cash flow. Contact SARS or your tax advisor immediately if you anticipate difficulty paying.
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If your company genuinely expects to have zero or negative taxable income, you can submit an IRP6 reflecting this. However, you must still submit the return—ignoring the requirement leads to penalties even if no tax is due.
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They're the same tax, just different timing. Provisional tax is advance payments toward your annual income tax liability. When you file your annual return, provisional tax payments are credited against the final amount due.
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SARS can review provisional tax estimates for up to five years in most cases. This is why accurate record-keeping and realistic estimates matter—you need to be able to defend your calculations if questioned.
Need help with provisional tax planning, accurate estimates, or SARS submissions?
👉 Contact Rae & Associates today. We'll ensure your provisional tax is handled accurately, strategically, and stress-free.
