We regularly receive requests to explain the various forms of taxes and how they all tie together.
i. Income tax;
Income tax is taxes levied on your taxable income for a specific tax year. The tax year for an individual is from 1 March to 28 February. The tax year for a legal entity is linked to the financial year end of that entity. SARS issues an assessment (referred to as IT34) based on the information submitted with your tax return (referred to as IT12 for individuals & IT14 for legal entities).
The IT 34 will indicate if any tax is payable, after PAYE and any provisional taxes have been taken into account (deducted).
ii. Provisional tax;
Certain individual tax payers and all legal entities are regarded as provisional tax payers. Provisional tax is based on the “current” tax year’s income. Provisional tax is paid every 6 months, normally end August (1st provisional tax on half of estimated annual income) and end February (2nd provisional tax on full year’s estimated income less any payments made with 1st provisional tax return). It can be seen as an advanced payment of income tax.
Let’s look at an example:
Tax year – 2016 (i.e. the year 1 March 2015 to 29 February 2016). Provisional tax for this year is payable end August 2015, the 1st one and end February 2016, the 2nd one.
Once your 2016 income tax return is assessed (which will happen later in the year) any provisional taxes paid during that tax year will be deducted from the total tax due to get to the amount to be paid (or refunded).
Thus, provisional tax is not an additional tax, it forms part of the annual tax liability.
iii. Dividend tax;
All dividends (and profit distributions by a CC) is subject to 15% dividend withholding tax. If a dividend of say R100 is declared, R15 will be held back by the entity and paid to SARS and the R85 paid to the shareholder/member. The R85 is not taxed in the hands of the shareholder/member.
iv. Payroll taxes
This relates to the PAYE, UIF & SDL amounts as calculated on the monthly payroll. It is payable by the 7th of the next month (or the last working day prior if the 7th falls on a weekend.
PAYE & half of UIF taxes are paid by the employee. The other half of UIF & SDL are paid for by the employer
Most entities are on a two month VAT cycle. The net VAT (Output less input) is payable by the end of the month following the VAT cycle. Electronically filed returns and electronic payments can be done up to the last working day of the month. Manual returns and payments are due earlier – by the 25th.