A Quick Guide to Understanding 2021/22 Provisional Tax for Retailers

As a busy retailer, tax is probably the last thing on your mind. However, as we move into the 2021/22 income tax year, it is essential to prepare for your provisional tax payments. To streamline this process, we have created a quick guide on what needs to be prepared for tax. We also offer a solution to alleviate the pressure that paying provisional tax may cause in your business.

What You Need to Know

The 2021/22 tax year for individuals and incorporated businesses with a February 28 year-end has the following payment cycles:

• The first six-month period ran from March 1, 2021, to August 31, 2021. During this time, you needed to estimate your taxable income for February 2022 and pay 50% of that amount, or alternatively use 50% of your taxable income from the 2020 tax year. The first provisional tax payment was due on August 31, 2021. Additionally, you needed to make top-up payments for any underestimation of your provisional tax payments for February 2021. The impact of COVID-19 in both 2020 and 2021 may complicate this, potentially creating cash flow problems in your business due to reduced sales or the recent COVID surge.
• The second provisional period for the 2022 tax year is based on the period from March 1, 2021, to February 28, 2022. This means you will be paying for a full year, less the first provisional payment. This second payment is due on February 28, 2022, and can again create cash flow challenges. The required payment method is electronic, and be cautious of submitting payments on weekends. You need to submit form IRP6. For more information, you can register or log in to SARS e-filing at SARS e-filing. You can also register once for all tax types using the Client Information System, which consolidates your tax, customs, and excise records based on your registered details. More information about the Client Information System can be found at Client Information System.

Understanding Company vs. Personal Provisional Tax

Companies automatically fall under the provisional tax system. However, if you are a sole proprietor or part of a partnership earning income above a salary (such as profit share, rental income, interest, etc.), you must also submit provisional tax returns.

Is Personal Provisional Tax Different from Income Tax?

No, provisional tax is simply a way to pay your income tax throughout the tax year in two or three payments instead of one large sum. The difference between PAYE and provisional tax is that PAYE is deducted from actual salaried earnings, while provisional tax is based on estimated taxable income. Because the amount is estimated, you may need to pay more at the end of the tax season, or alternatively, SARS may issue a refund if you've overpaid.

What is the Easiest Way to Calculate Your Expected Taxable Income?

The simplest method is to use your taxable income from the previous tax period or even two tax seasons prior, especially if COVID-19 affected your earnings. Adjust it based on expected changes in turnover or income for the new tax year, anticipating growth from new services or a decline from a COVID-related decrease in turnover.

You can also visit SARS Provisional Tax for guidance on calculating amounts due.

A Funding Solution to Assist Retailers with Provisional Tax

A Merchant Cash Advance is a financial product that enables retailers to fund their provisional tax. This option allows you to repay the facility used to pay provisional tax in line with your future turnover. While many financiers dictate how you use the funding provided, a Merchant Cash Advance offers flexibility. If you opt for a six-month repayment term or less, you can settle your finance facility in time for your next provisional tax payment. Establishing a rolling six-month facility for provisional tax can alleviate pressure on your monthly cash flow, allowing you to focus on what you do best—running your business!

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