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How recent changes to provisional tax affect Tier 1 and Tier 2 taxpayers

by , 13 March 2015
SARS issued changes regarding your provisional tax liability recently.

Whether they affect you, depend on whether you're a Tier 1 or a Tier 2 taxpayer.

Read on to find out more...

Your provisional taxpayer group determines how these changes affect you

SARS organises provisional taxpayers into two groups. Those earning revenues of below R1 million per year, and those earning R1 million plus per annum. SARS refers to these groups as Tier 1 and Tier 2 respectively.

The two tiers are:

• Tier 1 – taxpayers with a taxable income <R1m; and
• Tier 2 – taxpayer's taxable income >R1m.

Let's find out more about each category and SARS's new rules

If you're a Tier 1 provisional taxpayer, SARS says you now need to ensure your estimated tax due is within 90% of the actual final tax assessed by SARS.

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In other words, you have a 10% leeway of the final tax payable to SARS to be wrong.

Example: You estimate your final tax is R95 000, and you pay this as provisional tax. On assessment, you actually owe SARS R100 000. You're still within the 10% leeway, so SARS won't penlaise you for underestimating.

Tier 1 provisional taxpayers are also allowed to accept SARS' basic amount.

If you're a Tier 2 provisional taxpayer, you must ensure your estimated tax due is within 80% of the actual final tax assessed by SARS. You have a 20% leeway to be wrong.

What to include in your calculation of provisional tax  

To work out what to pay in the second provisional tax period (what pay by the end of February of the following year, or on the approved year end date) your must include:

• The total estimated tax for the full year;
• Less your employees' tax paid for the full year;
• Less any allowable foreign tax credits for the full year;
• Less the amount paid for the first provisional tax period.

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