Understanding Provisional Tax Deadlines for February Year-End Companies

For many businesses in South Africa, especially those with a February year-end, navigating provisional tax can feel like a complex maze. As a company operating in South Africa, understanding your provisional tax obligations is not just about compliance; it's about smart financial planning and avoiding unnecessary penalties. This guide from My Accountant will demystify the topic, focusing specifically on provisional tax due for February year end companies.

Provisional tax is essentially a method for taxpayers to pay their income tax liability in advance, rather than in one lump sum at the end of the assessment year. This helps ensure a steady flow of income for the fiscus and prevents taxpayers from facing a massive tax bill at year-end. For companies, it's a critical component of their financial calendar.

What is Provisional Tax and Who Must Pay?

Provisional tax is a system designed by the South African Revenue Service (SARS) to facilitate the payment of income tax by certain taxpayers who earn income other than a salary that is subject to PAYE (Pay As You Earn). It's an estimate of your annual income tax liability, paid in two or sometimes three instalments during the financial year.

Defining a Provisional Taxpayer

Almost all companies registered in South Africa are provisional taxpayers. This includes private companies, public companies, close corporations, and even certain trusts. The primary goal is to ensure that income tax is collected during the tax year in which the income is earned, preventing a large, unexpected tax payment at the end of the year.

Exemptions to Provisional Tax

While most companies are provisional taxpayers, there are very limited exemptions. For example, a non-resident company that doesn't carry on business in South Africa might be exempt. However, for most active businesses, provisional tax is a certainty.

The Critical Deadlines: Provisional Tax Due for February Year-End Companies

For companies with a financial year ending on 28 or 29 February, the provisional tax payment dates are crucial. Missing these deadlines can lead to significant penalties and interest from SARS.

First Provisional Tax Period

The first provisional tax payment for a February year-end company is typically due six months into its financial year. This means:

• For a financial year starting 1 March, the first payment is due by 31 August.

The amount payable for this period is based on an estimate of your taxable income for the full year.

Second Provisional Tax Period

The second provisional tax payment is due at the end of the company's financial year. For February year-end companies, this date is:

• By 28 or 29 February (the last day of the financial year).

At this point, you should have a much clearer idea of your actual taxable income. The second payment adjusts for any shortfall from the first payment, ensuring that by year-end, you've paid at least 80% (for companies) of your estimated tax liability.

Third Provisional Tax Period (Optional/Top-Up)

While not mandatory for all, a third, 'top-up' payment can be made. This payment is typically due seven months after the financial year-end.

• For February year-end companies, this would be by 30 September.

This period allows companies to settle any outstanding tax liability without incurring interest, especially if their final taxable income differs significantly from their second provisional estimate. It's an opportunity to pay any remaining tax within seven months of the financial year-end.

How to Calculate Your Provisional Tax Estimates

Accurately estimating your taxable income is key to avoiding penalties. SARS requires you to submit an estimated taxable income for the full year for each provisional tax period. There are specific rules regarding these estimates:

Estimating Your Taxable Income

1. First Provisional Payment (by 31 August): Your estimate should not be less than your basic amount (the taxable income assessed for the immediately preceding year of assessment). If your estimate is lower than the basic amount, you must provide valid reasons to SARS.
2. Second Provisional Payment (by 28/29 February): If your taxable income is less than R1 million, your estimate should be at least 80% of your actual taxable income for the year. If your taxable income is R1 million or more, your estimate should be at least 80% of your actual taxable income for the year, and this estimate must be accepted by SARS as reasonable.

It is crucial to be as accurate as possible. Underestimation can lead to significant penalties, while overestimation ties up capital unnecessarily. For complex situations or growing businesses, professional assistance from tax consultants can be invaluable in preparing these estimates.

What to Include in Your Estimate

Your estimate of taxable income should include:

• All income you expect to receive (e.g., trading income, investment income).
• All allowable deductions (e.g., operating expenses, capital allowances).
• Any assessed losses brought forward from previous years.

Remember, the estimate is for the full year of assessment, not just the period up to the provisional tax payment date.

Submitting and Paying Your Provisional Tax

The process of submitting your provisional tax return and making payments is streamlined through SARS's eFiling system.

Using SARS eFiling

Companies must submit their provisional tax returns (ITR12 provisional) electronically via SARS eFiling. If you're not yet registered, this is a priority. The eFiling system allows you to:

• Submit your estimated taxable income.
• Calculate your provisional tax liability.
• Generate a payment request.
• Make payments directly through various channels.

Payment Methods

SARS offers several convenient ways to pay your provisional tax:

• Electronic Funds Transfer (EFT): The most common method, done through your bank's online platform.
• eFiling: Direct payment through the eFiling portal, often linked to your bank account.
• Bank Branch: Payments can be made at most major bank branches using the SARS payment reference number.

Always ensure you use the correct Payment Reference Number (PRN) generated by SARS to ensure your payment is allocated correctly to your company's tax account.

Common Mistakes and How to Avoid Penalties

Provisional tax is a common area where companies make errors, leading to avoidable penalties. Being aware of these pitfalls can save your business money and stress.

Late Submission or Payment Penalties

SARS imposes administrative penalties for late submission of provisional tax returns and for late payments. These penalties can range from a percentage of the outstanding amount to fixed monthly charges, escalating quickly.

Underestimation Penalties

If your estimate of taxable income for the second provisional period (28/29 February for February year-end companies) is less than 80% of your actual taxable income, SARS may levy an underestimation penalty. The penalty is typically a percentage of the difference between 80% of your actual taxable income and your estimated taxable income.

Not Keeping Proper Records

Accurate bookkeeping and financial records are fundamental. Without them, preparing accurate provisional tax estimates becomes impossible, increasing the risk of errors and penalties. Professional bookkeeping services can help maintain impeccable records.

The Advantage of Professional Assistance

Managing provisional tax, especially for February year-end companies with specific deadlines, requires careful planning and a thorough understanding of tax legislation. This is where the expertise of a financial partner like My Accountant becomes invaluable.

Why Partner with My Accountant?

• Expert Guidance: We stay up-to-date with the latest SARS regulations and tax laws, ensuring your company remains compliant.
• Accurate Estimates: Our team can assist in preparing accurate provisional tax estimates, minimising the risk of underestimation penalties.
• Timely Submissions: We help you meet all deadlines, ensuring your returns are filed and payments are made on time.
• Strategic Tax Planning: Beyond compliance, we can help you with strategic tax planning to optimise your company's tax position legally and ethically.
• Peace of Mind: Focus on growing your business while we handle the complexities of your tax obligations, including company tax services.

Don't let provisional tax become a source of anxiety for your February year-end company. With the right support, it can be a smooth and manageable part of your financial year.

Get Expert Provisional Tax Assistance Today

Navigating provisional tax due for February year-end companies doesn't have to be a solo journey. My Accountant is here to provide the expert support you need to ensure compliance, avoid penalties, and optimise your tax strategy. Contact us today to discuss your provisional tax needs and how we can assist your business.