146. Money Matters: PAYE vs Provisional Tax

Navigating South Africa's tax landscape can be a minefield of confusion and potential penalties. In this enlightening conversation with tax expert Sue from Anthurico Accountants, we unravel the often misunderstood difference between PAYE and provisional tax.

Sue breaks down how PAYE operates as the standard tax system for employed individuals, with employers legally required to deduct tax monthly from salaries exceeding R5,500. Meanwhile, provisional tax works on a biannual payment schedule for companies and individuals with multiple income streams such as rental properties, investments, or business profits.

The conversation takes a crucial turn when Sue reveals the hidden pitfalls of provisional tax: the strict payment deadlines that trigger an immediate 10% penalty if missed by even a day, and the infamous "80% rule" that could cost taxpayers an additional 18% interest if they underestimate their tax liability. These insights are gold for anyone juggling multiple income sources or running their own business.

What makes this episode particularly valuable is the practical advice for simplifying your tax obligations. Should you ask your employer to increase PAYE deductions to cover additional income? Is it possible to deregister as a provisional taxpayer? Sue addresses these questions with straightforward guidance that cuts through the complexity.

Whether you're an employee with side investments, a property owner collecting rental income, or a business owner deciding how to structure your personal remuneration, this episode equips you with the knowledge to make smarter financial decisions and avoid unnecessary penalties. Give it a listen – your wallet will thank you come tax season!

Transcript

Welcome to Know Your Money

Speaker 1 0:12

Hello everybody, welcome to Know your Money. I'm Bronwyn Wehner.

Speaker 2 0:16

And I'm Craig Finch and we are from Growth Financial Planning. We hope you enjoy our podcast. You enjoy our podcast. Hi everybody. Welcome back. Sue from Anthro Rico Counties and you have given us a few great ideas on personal tax and business and we were chatting off air and we wanted to know if you can explain the difference between PAYE and provisional tax. Okay, I think people get confused with do I have to do both or what is it all about?

Speaker 3 0:50

Okay. The difference is provisionals are for companies, standard and individuals that own companies or earn income from other sources so rental income, that kind of thing Then you have to do provisional tax. If you go to a company and you're paying provisional yourself because you don't know what you're going to draw, Can you explain what provisional tax means?

Speaker 1 1:17

first, I think.

Speaker 3 1:19

Provisional means that you're taking your income for the whole year and then, when August comes, you say, okay, I expect to earn a million rand for the year. What will be my tax? Then I have to pay 50% in August and the other 50% at the end, 50% of your tax in August.

Speaker 1 1:39

Yeah. So let's say you earned a million rand and the tax bill is 300,000 rand. You're saying in August that person would have to pay 150,000.

Speaker 3 1:48

Exactly, and then the remainder at the end of the year.

Speaker 2 1:51

So they don't pay it monthly, they pay it.

Speaker 3 1:53

That's provisional we're talking about so provisional tax.

Speaker 2 1:56

you pay twice a year. Yes, so you receive the money. You should put it aside. And then, when August comes, you pay a chunk, and when does the other chunk get?

Speaker 3 2:04

paid End of February, end of February, and you've got to pay it on the day the last of the month the money must be paid. If it's paid on the first or the following month, it's a 10% penalty. My word Okay, okay. So that's also quite important.

Speaker 1 2:15

And provisional is for companies and for individuals that earn tax in more than one way, and you can opt to be a provisional taxpayer. Is that right?

Speaker 2 2:30

So if you are working for a company and you're earning a salary and they're taking tax off, that's P-O-I-E. So that's pay as you earn, pay as you earn, but you also have a rental property that you're earning income from or you're automatically a provisional taxpayer.

Speaker 3 2:41

No, you can reach this as a provisional taxpayer and it's up to you. You can ask your company to add extra tax for you. It makes your life easier and then they will deduct extra every month to cover that rental, or you can pay the provisional. So if you've got 10 properties and you earn more money on your rentals than you do on your salary, then provisionals might be a better way for you to go.

Speaker 2 3:04

Can you choose, though? Will sales let way for you to go? Can you choose, though? Will SARS?

Speaker 3 3:06

let you choose that. No, if you're employed, paye is standard. Okay, there's no option on that. Each company is compelled by law to deduct tax from the individuals that they work for them and pay it over to SARS.

Speaker 2 3:19

But is it possible that you pay in the PAYE and you're still doing provisionals?

Speaker 3 3:24

Yes, as I said. I mean if you've got 10 properties you're renting, so you're going to pay your PAYE on your salary and then you have to pay provisional on your rental income.

Speaker 1 3:35

Or you can ask them to increase the tax.

Speaker 2 3:38

Your company you're working for you can say take more off my, and they can do that.

Speaker 1 3:43

Exactly, Warren. Have you got that?

Speaker 2 3:45

Yeah, I understand that.

Speaker 3 3:46

I've just got a question. What about low wage labour? So at what point is personal income taxable? At about 5,500 rand a month is roughly when you need to start, but then again you know there are other issues as well. So my recommendation on any company if it's just you and your company, that's for you to decide. But I often recommend to my clients to register for PAYE. It makes their life easier. So if you're drawing 20 grand a month, you pay PAYE every single month. The company pays it over. It's, you know, four grand, five grand or whatever. Every month you pay it and it's done, instead of paying 50 times a year. So it's easier on the pocket to get budget for that amount of money every single month. If you've got employees, you're supposed to deduct UIF and PAYE.

Speaker 2 4:42

Over 5,000. Over 5,000.

Speaker 3 4:44

But UIF is from brand one.

Speaker 2 4:46

Yes, UIF is.

Speaker 3 4:47

So the only problem we do find is, let's say, you've got a maid who cleans the office and you've had her for 10 years and then she wants to retire or leave or whatever. You've got no documentation you can say to her yeah, you can go to unemployment office and go claim unemployment because she hasn't paid a cent.

Speaker 1 5:08

Two of you, I understand, yeah and then just it's better for you. The other thing was the provisional. So say, I'm going to estimate that I'm going to make a million rand this year, but now I make 1.5 million rand. What happens?

Speaker 3 5:27

then? Well, you'll know more or less by February, because you've now said in August you're going to make a million, so you've paid the 150 at that time. And when February? Because you've now said in August you're going to make a million, so you've paid the 150 at that time. And when February came you knew that you're really overpaid. So then you have to pay the difference. If you find you've short paid when you do return, you can pay in the difference. But it can't be more than 20% of the actual gross, because, remember, I said you have to be 80%, correct?

Speaker 2 5:54

Oh really.

Speaker 1 5:54

Yeah, Can you just explain that? Unpack that a little bit more.

Speaker 3 5:59

So like, let's say, in August you say I'm going to make, let's say you get commissioned, like people who sell houses. They in August says I estimate from last year and what I've seen this year, I'm going to make a million and then we'll pay 150,000 Rand of tax. So that gets paid. Then when February comes, you know you're going to pay X amount or whatever. You might have a case where you don't know when the house is going to go in February, or it's going to be registered in March. So you could um and ah about that. And let's say you think, okay, it's going to be in March, but then actually at the end of the day it's February, but then you've already paid 80% of the 1.3 million. So you've got 200,000 of the other commission that you never accounted for. I got lost, sorry, would you like me to start? Did you get it? I think so. Yeah, okay, we'll do this again.

Speaker 1 6:48

So we said we were going to do a million.

Speaker 2 6:50

Yes, you pay the 150 in August.

Speaker 1 6:53

We're saying that the tax amount is 300, right? Yes, for example yes, for example, you're paying the 150 now, in August, yes, then in February you should be paying another 150.

Speaker 2 7:04

Yes, but you sold extra.

Speaker 1 7:06

Yes, you didn't realise so now you've sold an extra house, let's just ease of reference, say another million. Yes, so now you would owe SARS 450.

Speaker 2 7:14

Yes.

Speaker 3 7:15

Right, so if you know that you can either pay it on 28th of February. If it doesn't materialize, you can get a refund at the end of the day, okay or you can short pay, but you've got to be within that 80% range.

Speaker 1 7:29

So now we short paid 300. Yeah.

Speaker 2 7:32

You're way over 80.

Speaker 3 7:33

If it's over 80, thenS will charge you a quant interest. Then what does that mean? That means the interest rate's like 18%.

Speaker 2 7:42

Okay, you're nice and critical, so you should have paid as close as possible. You didn't, so you owe SALS another interest rate on the money that you've kept instead of paying them.

Speaker 1 7:53

Yeah, I just think it's an important thing for people to understand, because you do have those numbers, but if you don't do it right, there's that 80% rule with an extra 18% for no apparent reason.

Speaker 2 8:08

So, sue, a lot of my friends often moan about they suddenly become a provisional taxpayer and they don't want to do that. Is there a way of reversing that?

Speaker 3 8:17

As I said, if you're earning a salary, you're still going to pay PAYE and then you have provision on a reason. So if you've got rental or investments or interest is a big issue. A lot of people will invest money, perfectly like in bank accounts, for example, and they get 200,000 rands of interest for the year. So you get your exemption portion but the rest is subject to tax and then obviously you're not going to pay in 60,000 rand or whatever the case may be. If that happens, SALS may raise a provisional tax return for you.

Speaker 1 8:54

But can you refuse it? I think is what Craig's asking, or do you have to?

Speaker 3 8:57

do that. You can go to SARS and say or you had it before, you don't have it now. Can you deregister? I mean yes.

Speaker 2 9:03

An employer I'm working for will draw the tax monthly, rather. You can do that.

Speaker 3 9:08

But they don't normally do it. On that reason they normally do it if there's other so rental income, interest, investments, anything like that then they will register you for provisional. Okay, but you're provisional plus PAYE.

Speaker 2 9:25

Yeah, so the problem with provisional is you must make sure you keep that money aside for the August payment and the February.

Speaker 1 9:29

And to get it right, yeah, to get it right is another and therefore, going back to a professional like you to help us with that, okay. Great, right, there's another, and therefore going back to a professional like you to help us with that, okay, great. Any other questions, warren? No well explained.

Speaker 2 9:38

Thank you, warren. Do you see the difference now between the two? I always saw it, craig, did you? Okay, awesome.

Speaker 1 9:45

Thank you so much, Sue. Thanks for your time we appreciate it.

Speaker 2 9:47

Thank you very much.

Speaker 1 9:48

Thank you for having me.

Speaker 3 9:49

Thank you for listening.

Speaker 2 9:51

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