Provisional tax is a method of paying tax for business owners and individuals who earn income that is not subject to PAYE.
Not many people are happy to pay provisional tax, however, provisional tax helps you to manage your income tax. You can pay it in 3 instalments (May, August and January) during the year instead of a lump sum at the end of the year.
You’ll have to pay provisional tax if your income tax liability was more than $5,000 at the end of the year.
Example – Standard option (Your provisional tax equals your last year’s residual income tax plus 5%).
Profit before tax for 2020: $70,000
Tax on this income is calculated as follows:
Income up to $14,000 @ 10.5% $1,470
Income $14,001 – $48,000 @ 17.5% $5,950
Income $48,001 – $70,000 @ 30% $6,600
Total tax on $70,000 $14,020
2020 provisional tax payable is $15,422
Payable in three instalments:
- 28 August 2020 $5,141
- 15 January 2021 $5,141
- 7 May 2021 $5,140
Still not clear? Please contact customer support team (firstname.lastname@example.org) or your assigned accountant for further details and/or clarification.