Budget 2026 made a significant change to the VAT registration threshold in South Africa, and many business owners have not yet acted on it. From 1 April 2026, the compulsory VAT registration threshold increased from R1 million to R2.3 million in annual taxable turnover. This is the most substantial adjustment to the threshold in years, and it has real implications for businesses on both sides of the line.
What Changed and When
From 1 April 2026, a business is only legally required to register for VAT once its annual taxable turnover exceeds R2.3 million. Before this date, the trigger was R1 million.
The voluntary registration threshold also changed. Voluntary VAT registration is now available from R120,000 in annual turnover, up from the previous R50,000 level. This brings more micro-businesses into the voluntary registration option if they choose it.
The VAT rate itself remains at 15%.
Who Is Directly Affected
Businesses currently between R1 million and R2.3 million in turnover
If your business has been registered for VAT primarily because it crossed the old R1 million threshold, and your turnover sits between R1 million and R2.3 million, you now have a choice.
You can apply to deregister from VAT. However, deregistration is not automatically the right call. VAT-registered businesses can claim input VAT on business expenses and purchases. If your business spends significantly on VATable inputs, you may be better off staying registered even at a lower turnover level. The calculation depends on your specific expense profile.
Businesses approaching the old R1 million threshold
If your turnover was approaching R1 million and you were bracing for compulsory registration, you now have more time and more room to grow before the obligation kicks in. The threshold increase gives many SMEs a window to build turnover and systems before taking on VAT compliance.
Businesses above R2.3 million
Nothing changes for you. You remain compulsorily registered and your VAT201 obligations continue as before.
Turnover Tax: A New Option for Some Businesses
Businesses between R1 million and R2.3 million that choose to deregister from VAT can now also consider the Turnover Tax system, which became accessible to this tier from 1 April 2026. Applications are made annually via eFiling by 28 February each year.
Turnover Tax replaces income tax, provisional tax, capital gains tax, and VAT with a single simplified levy calculated on gross turnover. It is designed to reduce compliance complexity for smaller businesses. Whether it works in your favour depends on your margins, your deductible expenses, and your overall tax position. It is not automatically cheaper and should be modelled before committing. Use the [tax calculator](/tools/tax-calculator) as a starting point, then get a professional view on whether Turnover Tax makes sense for your specific numbers.
The Input VAT Consideration
Before deciding to deregister, work through this question: how much VATable input tax does your business recover each period?
A business that buys significant stock, equipment, or services from VAT-registered suppliers benefits from claiming input VAT. That recovery reduces the effective cost of every purchase. If you deregister, you lose that benefit permanently on future purchases. For some businesses, the input VAT recovery alone justifies staying registered even below the threshold.
On the other hand, if your business has limited deductible inputs and your clients are mostly end consumers (not VAT-registered businesses), the administrative burden of VAT compliance may outweigh the benefit. In that case, deregistration could simplify your operations meaningfully.
How to Deregister for VAT If You Choose To
Deregistration is done through SARS eFiling or at a SARS branch. Key points:
- –You must submit a final VAT201 return for the period up to your deregistration date
- –Any output VAT due on trading stock or assets on hand at deregistration date must be declared
- –SARS will cancel your VAT registration once the application is approved
This is not a transaction you want to handle incorrectly. A missed output VAT adjustment on deregistration is an audit risk. Our [tax services team](/services/tax-services) handles VAT deregistrations and ensures the final return is clean.
Get a Review Before You Decide
The VAT threshold change is not a trigger to act immediately in either direction. It is a reason to review your current registration status against your actual turnover, your expense profile, and your client base.
If you are unsure whether to stay registered, deregister, or apply for Turnover Tax, book a consultation with Sikatrix. We will review your position and give you a clear recommendation based on your numbers.
Daniel Amoah is a Professional Accountant (SA), SAIPA #45969 and SARS Registered Tax Practitioner PR-0104889 at Sikatrix Business Accountants, Alberton.
