VAT registration threshold 2026 changes took effect on 1 April 2026, raising the compulsory registration level from R1 million to R2.3 million – unchanged for 17 years. If your annual turnover is below R2.3 million, you are no longer required to be registered for VAT. If you are currently registered below this level, deregistration is now an option, but exit VAT consequences mean you should run the numbers with your accountant before submitting a cancellation application to SARS.
Key Takeaways
- VAT compulsory registration threshold rises from R1 million to R2.3 million, effective 1 April 2026 – unchanged since 2009
- Businesses below the new threshold are not automatically deregistered – you must actively apply using the VAT123e form
- Exit VAT is levied on all business assets at deregistration date – this is the hidden cost most owners miss
- Service-based businesses with few input costs are the best candidates for deregistration
- B2B businesses and those with significant stock or equipment should calculate carefully before applying
The April 2026 budget delivered a long-overdue adjustment to the VAT registration threshold. From 1 April 2026, the compulsory registration level rises from R1 million to R2.3 million in annual taxable turnover – the first change since 2009. For SMMEs sitting between those two figures, it raises an immediate question: should you deregister, and if so, what does that actually involve?
The short answer is: it depends on your cost structure and client base, and there are clear scenarios pointing in both directions. This article covers both. For the full picture of what changed in the 2026 budget beyond VAT, read our Budget 2026 South Africa SMME guide.
What Changed on 1 April 2026
Finance Minister Enoch Godongwana confirmed the VAT registration threshold 2026 change in the 26 February budget speech. The compulsory registration threshold rises from R1 million to R2.3 million in annual taxable supplies, effective 1 April 2026. The voluntary registration threshold also increases from R50,000 to R120,000 per year.
The R1 million threshold had been in place since 2009 – 17 years during which business costs, inflation, and operating scale all changed substantially. A business at R1.1 million in turnover in 2009 was genuinely a small operation. That same nominal figure in 2026 sits well below the cost base of most viable SMME businesses.
One important clarification SARS has confirmed: businesses currently registered below R2.3 million are not automatically deregistered. The VAT registration threshold 2026 change gives you the legal option to deregister – it does not do it for you. You must actively apply for cancellation and continue submitting VAT returns and collecting VAT from customers until SARS issues formal confirmation of your deregistration date.
The VAT Registration Threshold 2026 Decision – To Deregister or Not
Who benefits most from deregistering? Service-based businesses with low VAT-able input costs are the clearest candidates – consultants, coaches, freelancers, trainers, and similar operators. If your primary expenses are your time and a laptop, you’re likely claiming minimal input tax. Deregistering means you no longer collect 15% VAT on invoices and remit it to SARS, removing a compliance burden that returns little financial benefit to your business.
For these businesses, the VAT registration threshold 2026 change is genuinely valuable. Your pricing becomes cleaner for private clients who can’t claim input tax, your compliance workload drops – no more bimonthly returns – and you retain the VAT component on invoices as revenue rather than holding it in trust for SARS.
Product-based businesses, importers, retailers, and manufacturers face a different picture. These businesses typically claim significant input VAT on stock, equipment, and materials. Losing that claim – and facing exit VAT on existing assets – will often cost more than the administrative relief is worth. The same applies if you primarily serve VAT-registered corporate or government clients who need valid tax invoices to claim their own input tax.
A practical test: add up your last 12 months of input VAT claimed. If that figure is substantial relative to the time you spend on VAT compliance, staying registered is likely cheaper than leaving. If it’s minimal, deregistering probably makes sense.
The Exit VAT Cost Nobody Warns You About
The reason tax professionals have been cautioning SMMEs to think carefully comes down to one thing: exit VAT. This is the cost that catches most business owners by surprise when they decide to deregister.
When SARS cancels your VAT registration, it treats your business as having made a deemed supply of all assets held on the deregistration date. You owe output VAT on those assets at 15/115 of their value – even though you have received no cash from any actual sale. Trading stock, plant and machinery, capital equipment, furniture, and goodwill all get caught in this calculation.
To illustrate: a retailer holding R500,000 in stock at deregistration would face an exit VAT liability of approximately R65,000, payable to SARS. The exit VAT liability can be settled in six equal monthly instalments, which provides some cash flow relief – but it’s still a material once-off cost that disappears entirely from your analysis if you stay registered.
The exit VAT rule exists to prevent businesses from claiming input VAT when acquiring assets, then escaping output VAT on those same assets by deregistering. It is a structural feature of the VAT system, not a penalty – but it affects the financial calculation for many businesses significantly.
How to Apply for VAT Deregistration with SARS
If your analysis confirms that deregistration makes sense, the process is clear. Complete form VAT123e – Application for Cancellation of Registration in respect of Enterprises – available on the SARS website. Submit via SARS eFiling, by email to your registered SARS branch, or in person at a branch using the eBooking system.
Supporting documents typically include your completed VAT123e form, a letter explaining your circumstances, recent financial statements or management accounts confirming your turnover is below R2.3 million, and bank statements corroborating your level of business activity.
Two critical points. First, all outstanding VAT returns must be submitted and all VAT liabilities, including any penalties or interest, must be settled before SARS will finalise the cancellation. Second, you must continue charging VAT and submitting returns until you receive SARS’s official cancellation notice – do not stop on the basis of having submitted the application. The deregistration is effective from the date confirmed in SARS’s notice, not the date you apply.
Keeping your SARS tax compliance status fully up to date before applying will also speed up the process, as SARS cannot process the deregistration while outstanding returns or liabilities exist.
When Staying Registered Still Makes More Sense
The VAT registration threshold 2026 change gives qualifying SMMEs a choice – not a directive. Several scenarios make staying registered the better financial call.
Stay registered if your clients are primarily VAT-registered businesses. Corporate buyers and government procurement officers use your tax invoices to claim input tax on their own returns. Some corporate buyers actively prefer registered suppliers, and for formal government tender submissions, VAT registration signals financial credibility alongside your tax clearance certificate. For SMMEs actively pursuing government contracts, maintaining registration supports the broader compliance picture that procurement officers assess.
Stay registered if you claim material input VAT on purchases. Calculate what you claimed over the last year and weigh it against your compliance time cost. For businesses buying R150,000 or more in VAT-able inputs annually, the input credit value typically exceeds the administrative burden of registration. Add exit VAT exposure on your existing assets to that calculation, and the case for staying registered strengthens further.
Stay registered if you are approaching R2.3 million and expect continued growth. Deregistering only to re-register within 12 months triggers a new application cycle, potential gap periods, and the complexity of reclaiming input VAT on assets. If your revenue is trending upward, the disruption rarely makes sense. Our guide on claiming tax deductions also covers how staying registered gives you broader options on allowable business expenses.
The VAT registration threshold 2026 change is a genuine improvement for South African small business – the first adjustment in 17 years. But the right response to it is a calculated financial decision, not a reflexive one. Run the numbers, factor in exit VAT, and take advice before submitting any application to SARS.
If your tax position is under control and your focus is on the working capital to execute government contracts and grow your pipeline, talk to us about applying for funding – or read the full Budget 2026 South Africa SMME guide for everything else that changed in this budget.
Sources & References
- Cancellation of VAT Registration | SARS
- Budget 2026 Frequently Asked Questions | SARS
- VAT Threshold Increased – Should SMEs Remain Registered? | Cliffe Dekker Hofmeyr
- Budget 2026 South Africa: Practical Guide for SMMEs | Sourcefin
Frequently Asked Questions
Does the VAT threshold increase to R2.3 million mean I am automatically deregistered?
No. SARS has confirmed that businesses currently registered below R2.3 million are not automatically deregistered. You must actively apply for cancellation using form VAT123e and continue submitting VAT returns and collecting VAT from customers until you receive official cancellation confirmation from SARS. The new threshold gives you the legal option to deregister — it does not action it on your behalf.
What is exit VAT and how does it affect my deregistration decision?
Exit VAT is output tax levied on all business assets held at the date of VAT deregistration. SARS treats the deregistration as a deemed supply of those assets and charges 15/115 of their value as output VAT — even though you have sold nothing. Trading stock, equipment, furniture, and goodwill are all caught. The liability can be paid in six monthly instalments, but it is a material cost that must be factored into your analysis before applying.
What form do I use to deregister for VAT with SARS?
Complete form VAT123e — Application for Cancellation of Registration in respect of Enterprises. This is available on the SARS website. Submit via SARS eFiling, by email to your registered SARS branch, or in person at a SARS branch using the eBooking system. You will need supporting documents including a letter explaining your circumstances, recent financial statements confirming turnover below R2.3 million, and bank statements. All outstanding VAT returns and liabilities must be settled before SARS will finalise the cancellation.
Should I deregister for VAT if my clients are mainly businesses?
Probably not. VAT-registered business clients use your tax invoices to claim input tax on their own VAT returns. Removing your VAT registration means they can no longer claim input tax on purchases from you, which may disadvantage you in procurement. For government tender submissions, VAT registration also contributes to the compliance credibility picture that procurement officers assess. Run the numbers on your input VAT position before deciding.
Can I voluntarily stay registered for VAT even if my turnover is below R2.3 million?
Yes. The threshold increase makes registration optional below R2.3 million — it does not prohibit it. If your business claims meaningful input VAT on materials or equipment, serves VAT-registered clients, or is approaching the threshold and expects growth, staying voluntarily registered is often the better financial choice. The voluntary registration threshold also increased from R50,000 to R120,000 per year, allowing smaller businesses to register if it suits their model.
How long does VAT deregistration take with SARS?
SARS does not publish a standard processing timeline. Processing time depends on documentation completeness, your compliance status, and SARS workload. Having all outstanding VAT returns submitted and all liabilities settled before applying speeds up the process. You must continue to operate as a VAT vendor — charging VAT, issuing tax invoices, and submitting returns — until you receive SARS’s formal cancellation notice confirming the effective deregistration date.
What was the VAT registration threshold before April 2026 and why was it changed?
The compulsory VAT registration threshold was R1 million per year, unchanged since 2009 — 17 years during which inflation and business costs shifted substantially. Finance Minister Godongwana announced the increase to R2.3 million in the February 2026 budget speech, acknowledging that the unchanged threshold had become a compliance burden for genuinely small businesses. The voluntary registration threshold also increased from R50,000 to R120,000 per year at the same time.
