What is provisional tax?Unlike income tax, provisional tax is an estimate rather than an accurate calculation of income tax for the year. The estimate is determined by review your year to date income statement, to take a good guess at what your profit will be for the year. Provisional tax is then calculated off the estimated profit at normal tax rates.
How often do we submit the returns?Provisional tax returns are submitted twice a year. Normally August and February. A top up payment can be made in September of the following year, if needs be.
What should we consider when preparing the estimate?The are a number of expenses at year end that are not in the accounts when reviewing the income statement for provisional tax. Consider:
- What creditors you will still need to pay that are not posted;
- Depreciation of fixed assets;
- Interest on loans not yet posted;
- Bonuses not yet paid;
- Bad debts that need to be written off.
Why pay now?Consider provisional tax as a forced savings. Unfortunately the interest rate is not great. If you overpay your provisional tax you will be refunded. So save the tax now while the cash is still around.
If you need help with your provisional tax, please contact us.