Provisional tax for small businesses: who pays, when, and how to avoid the penalty
Provisional tax is how South Africans with income that is not a normal salary pay their income tax in instalments during the year. Get the estimate wrong and the South African Revenue Service (SARS) charges a penalty, so it pays to understand the rules.
In short
- You are a provisional taxpayer if you earn income that is not a normal salary, such as business, rental or investment income, or a salary from an employer who does not withhold PAYE.
- Individuals pay in August and at the end of February, with an optional top-up after year end. Companies follow their own financial year.
- SARS charges a 20% penalty if your second estimate is below 80% of your final taxable income.
- Paying late brings a 10% penalty, plus interest at 10.25% a year.
Who is a provisional taxpayer
You are a provisional taxpayer if you earn income that is not remuneration, for example business income, rental income or investment income. You are also one if your salary comes from an unregistered employer, so no tax is deducted at source. Trusts are provisional taxpayers if they retain income or if income vests in non-resident beneficiaries.
You are exempt if you carry on no business and either of these is true.
- Your taxable income will not exceed the tax threshold, which is R99,000 for a person under 65.
- Your income consists only of interest, dividends, rent or foreign income that does not exceed R30,000 for the tax year.
When you pay
For individuals, the tax year runs from 1 March to the end of February. For the 2027 tax year (1 March 2026 to 28 February 2027):
| Payment | Date |
|---|---|
| First provisional payment | 31 August 2026 |
| Second provisional payment | 28 February 2027 |
| Optional third payment (voluntary top-up) | 30 September 2027 |
Companies follow their own financial year, with the first payment six months into the year and the second at year end. Diarise your own dates.
The penalties
- Underestimation penalty: 20%. If your second estimate is below 80% of your final taxable income, SARS charges a penalty of 20% on the shortfall. The rule for a lower estimate is stricter when your taxable income is high, so ask us before you rely on a basic figure.
- Late payment penalty: 10%. Paying after the due date brings a 10% penalty.
- Interest: 10.25% a year. SARS charges this on late or underpaid tax from 2 March 2026. It pays interest of 6.25% a year on refunds of overpaid provisional tax.
How to make an estimate you can defend
- Use your year-to-date numbers. Take actual profit to the estimate date from your accounts and project the rest of the year.
- Include all income. Business profit, rent, interest, dividends and any foreign income.
- Apply the right deductions and rebates, including retirement fund contributions up to the limit, and check the current tax tables.
- Estimate the second payment carefully. It carries the penalty risk. If your income grew, use the third payment to top up before SARS assesses you.
- Keep the working. If SARS queries your estimate, you want to show how you reached it.
Provisional tax and cash flow
A provisional payment is a large bill twice a year. Put it in your cash forecast. Our guide to improving cash flow shows how. A monthly transfer into a separate account for tax makes the payment painless. The tax regime you choose also matters: a business on turnover tax makes its own two payments and does not use provisional tax. See which regime fits your business.
What to do now
- Check whether you are a provisional taxpayer using the two exemptions above.
- Put both dates in your diary with a reminder two weeks earlier.
- Ask your bookkeeper for a year-to-date profit figure before each payment.
- Set aside tax monthly based on your profit, not when the payment falls due.
- Use the top-up payment if your income rose after the second payment.
Frequently asked questions
Do employees pay provisional tax?
Usually not, because their employer deducts PAYE. They become provisional taxpayers if they also have other income above the exemptions, such as rental or freelance income.
What is the voluntary top-up payment?
An optional payment after year end. It lets you pay any shortfall before SARS assesses you, which can reduce interest.
What if I overpay?
SARS refunds the overpayment and pays interest of 6.25% a year on it.
Sources and further reading
- Budget 2026 Frequently Asked Questions (provisional taxpayers, payment dates, penalties, interest rates), South African Revenue Service
This article is general information for South African businesses. It is not tax, legal or financial advice, and it reflects the rules and figures at the date shown above. Tax rules change, so confirm the current position before you act. TBL's practitioners are registered tax practitioners.