The VAT registration threshold moved to R2.3 million. Should you deregister?

With effect from 1 April 2026, the compulsory VAT registration threshold increased from R1 million to R2.3 million in taxable supplies over any twelve-month period. The voluntary registration threshold rose from R50 000 to R120 000.

These thresholds had not moved since 2009. The practical effect is that a substantial band of small businesses now sits below the compulsory line, and businesses already registered within that band may apply to deregister.

What has not changed

The VAT rate remains 15%. The increases proposed in 2025 were reversed before taking effect, and the 2026 Budget left the rate unchanged. Zero-rating and exemption rules are unaffected.

The case for deregistering

You sell mainly to the public. If your customers are not VAT vendors, the 15% you add is a real cost to them. Coming out of the system lets you either drop your prices or keep the margin.

Your input VAT is small. A service business with few taxable purchases recovers little on the input side, so registration is close to pure administrative cost.

The compliance burden is disproportionate. VAT201 returns every two months, valid tax invoices for every claim, and exposure on verification. For a business at R1.5 million in turnover that is a meaningful overhead.

The case for staying registered

Your customers are VAT vendors. If you sell business-to-business, your customers claim the VAT you charge. It costs them nothing, and deregistering simply forfeits your own input recovery.

You carry significant input VAT. Businesses that buy stock, materials or equipment recover 15% on those purchases. Deregistering turns that recovery into a cost.

You are close to the threshold or growing. Deregistering at R2 million and crossing R2.3 million eighteen months later means re-registering, with a second round of system changes.

Perception. In some sectors a VAT number signals scale. Whether that is rational or not, it affects who will contract with you.

The exit charge

This is the part most often missed. On deregistration you are treated as having disposed of the assets in your business, and output VAT becomes payable on assets on which input tax was previously claimed — trading stock, vehicles, equipment.

For an asset-light service business the amount may be small. For a business holding stock or vehicles it can be substantial, and it falls due immediately. Work this number out before you decide, not after.

Turnover tax as an alternative

The turnover tax limit also rose to R2.3 million from 1 April 2026, and the tax-free band within it increased from R335 000 to R600 000. Turnover tax replaces income tax, CGT and dividends tax with a single annual payment, and a registered micro business need not register for VAT while it stays below the limit.

The catch is that turnover tax is charged on gross turnover, not profit. It suits high-margin businesses. A low-margin business can pay more under turnover tax than under the normal system, so compare the two on your actual numbers.

How to decide

Four questions settle it in most cases:

1. What proportion of your customers are VAT vendors?
2. What did you recover in input VAT over the last twelve months?
3. What would the exit charge be on your current assets?
4. Where will your turnover be in two years?

If your customers are businesses and your input VAT is material, staying registered is usually right. If you sell to consumers, recover little, and hold few assets, deregistering is worth the arithmetic.

These amendments were announced in the 2026 Budget and SARS has been administering the new thresholds from 1 April 2026, ahead of promulgation. We are happy to run the numbers on your position.