[Question] Capturing of Provisional Tax Payments on Pastel

[betst07]

Good day all. I'm really grateful to be able to ask questions to ease my mind a bit. I want to make sure that I do things the correct way.

The CC with one VAT and IT number has 3 sub-divisions, each created as a separate company on Pastel (each with its own separate bank account number). First provisional payment August 2016 was made from the one company and the February 2017 second provisional payment made from the other company. The third and last payment for 2016 was also paid from the 2nd company.

The previous provisional payments were debited to a VAT/Tax Provision Account in the balance sheet and the bank account credited. Is it acceptable to allocate it to a provision account? Then how do I 'get rid' of the entries as the 2016 financial year is now completed?

I was advised by the previous bookkeeper that I should use loan accounts to allocate all the provisional tax payments to the one company's VAT/Tax Provision so that the one company has the taxable total as a debit balance. Thereafter I should credit it with the total and debit retained earnings and use the date as 29 February 2016 for the journal entry. Is this the correct way of doing it?

Then for the 2017 1st provisional payments I should use the VAT/Tax Provision account again.

[EAB]

Yes, you will credit the bank (or loan account) and debit the VAT/Tax Provision account.

You don't process transactions to the retained income account.

At the end of the year you need to calculate the company tax expense. This tax expense needs to be credited to the VAT/Tax Provision account and debited to the Income Tax expense (I/S).

Your VAT/Tax Provision account should reflect the amount owing to or refundable from SARS.

Example: Your first payment was R6000 and the second R8000. Your income tax expense was R11000. Your entries in the VAT/Tax Provision account will be as follows:

First payment 6000 dt
Second payment 8000 dt
Tax expense 11000 ct
___________
Your balance 3000 dt Tax refund from SARS

When you receive the refund you will then debit bank and credit VAT/Tax Provision account with the R3000. This will then clear your provision account for the new year.

Please note that there might be a delay in when the refunds are received or payments made to SARS and thus the VAT/Tax Provision account might consist of taxes from more than 1 tax year

[betst07]

Thank you Werner. It makes more sense to use an expense account. If you don't mind, I have another question.

The Provision account will have a debit balance, no refund expected from SARS. My question is this: I will have to journalize the debit balance to the Income Tax expense. What date do I use for the journal? The last payment date to SARS (yesterday) or 29 February? The financial statements were completed by the previous accountant and handed over to the new accountant already.

[EAB]

You don't clear the provisional tax balance to the income statement. You will have to credit the actual tax expense amount to the provision account and credit income tax expense (I/S).

If you use my previous example and and put the income tax expense on R16000, then your provision account will look like this:

First payment 6000 dt
Second payment 8000 dt
Tax expense 16000 ct
___________
Your balance 2000 ct Tax due to SARS.

When you pay the amount to SARS, you will then credit bank and debit the provision account with the R2000. This will then clear your provision account for the new year.

Your income tax expense journal date needs to be the last day of the year, in the 2016 tax year will be 29 February 2016.