Provisional tax for freelancers and sole proprietors: deadlines and how to avoid penalties
If you earn income that is not a salary, SARS expects you to pay tax during the year. Here is how provisional tax works, when the payments are due, and how to estimate without getting penalised.
When you are employed, tax leaves your salary before you see it. When you work for yourself, nobody does that for you. Provisional tax is how SARS collects income tax from people in that position: instead of one large bill after the year ends, you pay in two instalments during the year, based on what you expect to earn.
It is not a separate tax. It is the same income tax, paid in advance.
Who is a provisional taxpayer
In broad terms, you are a provisional taxpayer if you earn income that is not remuneration from an employer. That includes:
- Freelancers and independent contractors
- Sole proprietors
- People with rental or other business income alongside a salary
You do not register separately. If you fit the definition, you simply request and submit the provisional tax return, the IRP6, on SARS eFiling.
There are exemptions for people whose only non-salary income is small, such as modest interest or rental income. Check the current SARS criteria if you think that applies to you.
The deadlines
For individuals, the tax year runs from 1 March to the end of February.
| Payment | When it is due | What it covers |
|---|---|---|
| First period | End of August | Half of the tax on your estimated income for the full year |
| Second period | End of February | The rest of the tax on your estimated income for the full year |
| Third period (optional) | End of September, after the year has ended | A top-up if your first two payments fell short |
If a deadline falls on a weekend or public holiday, submit and pay by the last business day before it.
How the estimate works
Each IRP6 asks you to estimate your taxable income for the whole year. SARS works out the tax on that estimate, subtracts any employees' tax and earlier provisional payments, and the balance is what you pay.
Taxable income means your income after allowable business expenses. That is why your expense records matter as much as your invoices: every legitimate expense you can prove reduces the amount you are taxed on.
SARS also gives you a "basic amount", which is the taxable income from your most recent assessment. You can use it as a starting point, but if your income has grown you are expected to estimate higher.
How penalties happen
There are three ways provisional tax becomes more expensive than it needs to be.
Paying late. A late payment attracts a 10% penalty on the amount due, plus interest.
Underestimating in the second period. The February estimate is the one SARS tests. The rule depends on your income:
- If your actual taxable income turns out to be R1 million or less, your estimate must be at least the lower of your basic amount or 90% of your actual taxable income.
- If it is more than R1 million, your estimate must be at least 80% of your actual taxable income.
Fall short and SARS can charge a penalty of 20% on the tax shortfall.
Not submitting at all. If no estimate is submitted, SARS can treat it as an estimate of nil, which sets up the underestimation penalty automatically.
Four habits that keep it painless
- Set money aside from every payment. Move a portion of each client payment into a separate account the day it lands. Tax you have already saved is much easier to pay than tax you have to find.
- Keep your books current. You cannot estimate a year's income in February from a pile of unsorted bank statements. If income and expenses are captured as they happen, the estimate takes minutes.
- Estimate from real numbers in February. By the second deadline you have eleven months of actual figures. Use them rather than last year's assessment.
- Use the third payment if you were short. A top-up by the end of September reduces the interest SARS charges on any shortfall.
Where Eazy-Biz fits
Eazy-Biz keeps your invoices, expenses, and cashflow in one place, with a tax workspace built for South African business owners. When August and February come around, you are reading your numbers off a screen instead of rebuilding them from scratch. Start a free trial and capture this month's income and expenses to see how it feels.
Related: if your turnover is growing, check whether you are approaching the VAT registration threshold.
This article is general information for South African business owners and is not tax, legal, or financial advice. Rules and thresholds change, so confirm your position with SARS or a registered tax practitioner before acting on it.