[Question] Company Provisional Tax Calculation and PAYE

[Brendon]

Good Day

I hope this is the correct forum for my question, and that someone can assist.

I understand that Provisional Tax in South Africa is submitted to SARS on an IRP6 twice a year, and an optional 3rd submission can be made should there have been any under or over submission from the first two submissions. Thereafter The final Income Tax return is done one year after the end of the Financial Year, and an ITR14 is submitted.

My question is relating to the actual calculation, and slight difference in submission.

For your IRP6 Return, the following is calculated (Gross Income less Cost of Sales and Expenses = Taxable Income | Tax on Estimated Taxable Income less Employees Tax (PAYE) = Amount Payable).

On the ITR14 Submission the PAYE is included in the Salaries and Wages Expenses before determining Taxable Income, and therefor tax payable, and not deducted after the Tax has been calculated. Does this not mean that there will actually be an additional amount payable by the end of the year due to this difference in calculation?

Would appreciate some clarity on this.

Best Regards

[Krono9]

Essentially, don't confuse a company with an individual as the form caters for both. For a company you leave the PAYE blank. If an individual provisional-tax payer that might have also paid PAYE deducted from one of his income streams, it would make sense for him to calculate taxable income, then tax on it... then reduce with PAYE(tax) already paid resulting in additional provisional tax due.

Hope that makes sense

[Andromeda]

Hi Brendon

The Salaries and Wages is the gross expense paid to employees and therefor cannot include PAYE deducted from them. You deduct it and pay it to SARS as a legal requirement.

[Brendon]

Essentially, don't confuse a company with an individual as the form caters for both. For a company you leave the PAYE blank. If an individual provisional-tax payer that might have also paid PAYE deducted from one of his income streams, it would make sense for him to calculate taxable income, then tax on it... then reduce with PAYE(tax) already paid resulting in additional provisional tax due.

Hope that makes sense

Hi Krono

Thank your for the response, this was my thinking exactly.

The confusing thing is that on the SARS "Guide for Provisional Tax" - specific page for companies attached. It says you can deduct the Employees Tax for First Period, and Second Period, then no deduction on 3rd (voluntary Top-up), essentially meaning the deducted amount will become due. Either on a 3rd top-up or when submitting your final ITR14 Submission.

I have also read on other accounting websites, that if you deduct employees tax you can spread the tax payable out over 18 months essentially as opposed to paying the total amounts due immediately. Personally, i do not think this is wise, but this is what is being said.

Any further thoughts?

Best Regards

[Andromeda]

Hi Brendon, you are confusing the PAYE paid by a taxpayer, which is deductible from the tax payable, with the PAYE paid by the tax payer's employees, which has nothing to do with the exercise.

An entity pays tax on its profit, less certain allowances. To ease the burden on the fiscus the intention is that the taxpayer has paid all taxes already by the end of the tax year (provisional tax).

The line you have highlighted refers to the PAYE of the taxpayer, not the employees of the taxpayer.

To all intents and purposes, the tax calculation of an entity is the same for an incorporated entity as it is for a sole proprietor, obviously except for the rate.

[Andromeda]

The PAYE deducted is never an expense of the company, not for provisional tax or any other reason. It is a liability until paid to the tax authority.

Perhaps that is what you mean.

[IntegraOutsourcing]

Yes, there can be a difference in the calculation and amount payable between the IRP6 provisional tax returns and the ITR14 final income tax return in South Africa.

In the IRP6 provisional tax returns, the PAYE (Employees' Tax) is deducted from the taxable income after calculating the tax on estimated taxable income. This means that the tax liability is determined before considering the PAYE already withheld from the employee's salary.

However, in the ITR14 final income tax return, the PAYE is included as part of the Salaries and Wages Expenses, which are deducted from the gross income to calculate the taxable income. This means that the PAYE is accounted for before determining the tax payable.

As a result of this difference in the calculation, there can be a variation in the tax liability between the provisional tax returns and the final income tax return. Depending on the specific circumstances, it is possible that the inclusion of PAYE in the Salaries and Wages Expenses could lead to an additional amount payable at the end of the year.

[Andromeda]

Nonsense