The New VAT Threshold of R2.3 Million: Stay Registered, Deregister or Choose Turnover Tax

With effect from 1 April 2026, a business is required to register for VAT only when its taxable supplies exceed R2.3 million in a 12-month period. The previous threshold was R1 million. A business with a turnover between those two amounts may be registered at present only because the earlier rules required it. This raises a decision that deserves careful consideration: to remain registered, to apply for deregistration, or to consider Turnover Tax. The correct answer depends on the business’s customers, its costs and the assets it holds, and an ill-considered decision can be expensive.

Key Facts at a Glance

Compulsory VAT registration threshold: increased from R1 million to R2.3 million, effective 1 April 2026, as announced in the Budget of 25 February 2026.

Voluntary registration threshold: increased from R50 000 to R120 000.

Deregistration: a vendor may apply to cancel its registration if its taxable supplies will be less than R2.3 million in any consecutive 12-month period. The process requires an application and does not occur automatically.

Before SARS finalises a cancellation: all outstanding VAT liabilities must be settled, and output tax on certain assets still held must be declared in the final VAT return.

Turnover Tax: the qualifying turnover threshold is likewise R2.3 million. It is a simplified system for micro businesses that replaces income tax, VAT, provisional tax, capital gains tax and dividends tax. A registered micro business may elect to remain in the VAT system.

Turnover Tax rates for years of assessment ending between 1 March 2026 and 28 February 2027: 0% on turnover up to R600 000, followed by bands of 1%, 2% and 3% as turnover increases.

What Has Changed

For many years, a business whose taxable supplies exceeded R1 million was obliged to register for VAT. The threshold was not adjusted while prices rose, and many small businesses were brought into the VAT system on a turnover that did not reflect their real size. The Budget has corrected this. The compulsory threshold is now R2.3 million, and the voluntary threshold has increased from R50 000 to R120 000.

The change does not remove any business from VAT automatically. Existing vendors remain registered until they take action. A business that exceeded R1 million in the past, and now falls below R2.3 million, is still registered, still charges VAT and still submits returns, unless it elects otherwise.

A Business With a Turnover of R1.5 Million

Consider a business with an annual turnover of R1.5 million. Under the earlier rules, registration was compulsory. Under the current rules, it is not. Three options are available, and each has consequences.

Option one: remain registered. Many businesses benefit from remaining in the VAT system. Where customers are VAT vendors who claim input VAT, a VAT invoice from the business has greater value to them. Where the business purchases significant stock, equipment or services, it recovers the VAT it pays. Remaining registered is permitted, provided the requirements for voluntary registration are met.

Option two: apply to deregister. This reduces administration and removes the need to charge VAT, which may improve competitiveness against customers who cannot recover it. However, the right to claim input VAT falls away from that point. SARS also requires the business to account for output tax on certain assets still held at deregistration, and it will not finalise a cancellation until outstanding VAT liabilities have been settled. A business that holds vehicles, equipment or stock should calculate these amounts before applying.

Option three: consider Turnover Tax. For a qualifying micro business with a turnover of up to R2.3 million, Turnover Tax replaces income tax, VAT, provisional tax, capital gains tax and dividends tax with a single tax calculated on turnover. The tax-free amount is R600 000. It may reduce administration considerably. It is elective, and a micro business may choose to remain in the VAT system.

A Practical Checklist

Calculate taxable supplies for the past 12 months and the expected supplies for the next 12. SARS tests the threshold over consecutive 12-month periods.

Identify the customer base. If most customers claim input VAT, deregistration may make the business’s pricing less attractive.

Quantify the VAT recovered. If input VAT on stock, equipment or services is significant, losing the right to claim it may cost more than the administration saved.

Value the assets held. On deregistration, output tax on certain assets must be declared in the final return. The amount should be known before applying.

Compare the overall tax position. For a micro business, the expected Turnover Tax should be compared with the current income tax, provisional tax and VAT, including the time spent on compliance.

Review the SARS account. Outstanding VAT liabilities must be settled before a cancellation is finalised.

Avoid hasty decisions. Re-registration at a later stage is possible, but the timing and consequences require careful planning.

How We Assist

Order in business starts with sound numbers, and we work through them with our clients. Our team of professionals models the VAT position, manages the deregistration application with SARS where appropriate, and tests whether Turnover Tax would leave the business better off. Where the question extends to pricing, structure or growth, we assist with the taxation and advisory services that businesses and trusts in our region rely on.

We do not recommend deregistration merely because it has become possible. If remaining registered protects a client’s margins and customer relationships, we will say so. Business owners who would like to discuss their position are welcome to contact our office.

Frequently Asked Questions

Q: What is the VAT registration threshold in South Africa for 2026?

A: Compulsory VAT registration is required once taxable supplies exceed R2.3 million, increased from R1 million with effect from 1 April 2026. The voluntary registration threshold is R120 000, increased from R50 000.

Q: Must a business deregister for VAT now that the threshold has increased?

A: No. Existing vendors remain registered until they apply to cancel. An application may be made if taxable supplies will be less than R2.3 million in any consecutive 12-month period, but SARS will not finalise the cancellation until outstanding VAT liabilities have been settled.

Q: What happens to assets on deregistration?

A: Output tax on certain assets held when the enterprise ceases to be a vendor must be declared in the final VAT return. The amount depends on the assets involved, so it should be calculated before an application is made.

The higher threshold gives a business a choice that it did not have last year. Before deciding to remain registered, to deregister or to move to Turnover Tax, ensure the decision is based on the business’s own numbers. Contact WV Rekenmeesters and let us help you determine which option brings the most order to your business.