It’s no secret that the COVID-19 pandemic has turned our world upside down and we are yet to understand the huge impact it will have on our country’s economy and its people. It does seem, though, that Treasury is trying its best to bring relief measures to South Africans and boost companies’ cash-flow and prevent job losses where it can, during these unprecedented times.
One such emergency relief measure is Provisional Tax Payment Relief for 2021, where provisional taxpayers only have to pay 65% of their tax liabilities in the current tax year. This measure is aimed at assisting qualifying taxpayers with small to medium-sized businesses – individuals, companies, and trusts (including micro-businesses) – to help alleviate cash flow problems they may be experiencing.
“Allowing for deferred payment of provisional liabilities should assist these businesses by providing additional cash flow during the crisis. This could be the difference between pushing a small or medium-sized business into liquidation or providing some space for the business to get through the crisis and add to the economic recovery, hopefully being a source of higher tax revenue in the medium term,” Treasury said.
How Will This Affect Provisional Taxpayers?
The relief measures, intended to counter the adverse impact of the COVID-19 pandemic, will come by way of deferment of your first and second provisional tax payments should your cash flow warrant that you need deferments. This will run for payments that have to be made from 1 April 2020 to 1 April 2021.
Provisional taxpayers will now only have to pay 15% of the estimated total tax liability for their first tax payment, payable by 31 August 2020, and the second payment, payable by 28 February 2021, will be based on 65% of the estimated total tax liability. The outstanding amount must be paid by 30 September 2021 (or six months after a company’s financial year-end), to avoid interest charges.
SARS is not making any changes to the way the provisional tax system works. Nothing has changed in terms of how your payments need to be calculated, this is business as usual – the submission of provisional tax will be filed in exactly the same way as it has always been.
So, that means, Dirmeik Consulting will still submit the full amount due, the only difference now is that the payment will be reduced in accordance with the published deferred payment rules.
What You Need to Know
- You need to advise us what your situation is, with regards to your income for provisional tax purposes and your cash flow position. We will need to know this well before we start the process, so that we can determine your submission and payment.
- If your business income has reduced because of COVID-19 we must take this into account in the provisional tax calculations.
- We will be tracking the provisional tax payments so we can advise you when payments fall due. Keep us informed as to what payments you have made so that we can keep our records up to date.
- Where you have claimed the COVID-19 relief, we will communicate with you by the time it comes to the third provisional or top-up payment.
- If you are unable to pay any taxes owing to SARS, please advise us so that we can make the necessary application to SARS on your behalf.
The Basic COVID-19 Relief Measures Rules
- The company/business’ turnover must not be greater than R100 million.
- The company/business must be tax compliant (no outstanding tax returns and all tax payments are up to date).
- For an individual or trust, passive income (rent, interest, dividends, etc.) cannot be more than 20% of total income.
- The taxpayer must be able to prove substantial and material financial hardship due to COVID-19.
- In the event that the relief is claimed, and the taxpayer is not tax compliant then the normal penalties and interest will kick in on the deferred payments.
The Official Rules from SARS
- Deferral of a portion of the payment of the first and second provisional tax liability to SARS, without SARS imposing penalties and interest for the late payment of the deferred amount.
- The first provisional tax payments due from 1 April 2020 to 30 September 2020 will be based on 15% of the estimated total tax liability, while the second provisional tax payments due from 1 April 2020 to 31 March 2021 will be based on 65% of the estimated total tax liability (after deducting the 15% payment amount received from the First period).
- Provisional taxpayers with deferred payments will be required to pay the remaining 35% tax liability when making the third provisional tax payment, in order to avoid interest charges on assessment.
If you require any further guidance on the new rules or how your business can claim for payment relief measures, get in touch with us at Dirmeik Consulting as soon as possible.