VAT Registration Threshold 2026: South Africa Raises Limit to R2.3 Million

This change took effect today — 1 April 2026. The compulsory VAT registration threshold has increased from R1 million to R2.3 million. The voluntary registration threshold has increased from R50,000 to R120,000.

Since 2009, the R1 million ceiling acted as a tax on growth, pulling micro-enterprises into a complex administrative net long before they reached a sustainable scale. By adjusting this threshold to align with nearly two decades of inflation, the Treasury has finally acknowledged that a R1 million business in 2026 is significantly smaller and more vulnerable than it was in 2009.

If your business generates between R1 million and R2.3 million in annual taxable supplies, this change directly affects you. This guide explains what the new thresholds mean, who is now exempt from compulsory registration, whether you should deregister if you qualify to, and what the hidden costs of deregistration can be.

What changed and what stayed the same

Three things changed on 1 April 2026:

The compulsory registration threshold now applies when the total value of taxable supplies exceeds R2.3 million per annum, increased from R1 million. The voluntary registration threshold now applies when the total value of taxable supplies exceedsR120,000 per annum, increased from R50,000. The Turnover Tax threshold also increased to R2.3 million from 1 April 2026.

One thing that did not change: the VAT rate remains 15%. The rate was proposed to increase to 15.5% from 1 May 2025 and to 16% from 1 April 2026 but this increase was reversed. VAT is still 15% on all standard-rated supplies.

Who this affects — three categories of business

Category 1: Businesses with turnover below R1 million

Nothing changes for you. You were not required to register before and you are still not required to register now. You may still register voluntarily if your taxable supplies exceed R120,000 per year and doing so makes commercial sense for your situation.

Category 2: Businesses with turnover between R1 million and R2.3 million

This is where the change is most significant. Many VAT-registered SMEs may now find that they are no longer obliged to remain registered as vendors on the basis that the value of their taxable supplies falls below the new R2.3 million threshold.

You now have a choice: deregister from VAT, or remain registered voluntarily. This is not a straightforward decision — read the deregistration section carefully before acting.

Category 3: Businesses with turnover above R2.3 million

You remain compulsorily registered. Nothing changes for you except that the threshold you need to stay above to remain in the VAT system has shifted. Continue filing your VAT201 returns as normal.

Why the threshold had not moved for 17 years

Since 2009, the R1 million ceiling acted as a tax on growth, pulling micro-enterprises into a complex administrative net long before they reached a sustainable scale.

For many SMEs, compliance costs can be disproportionate to turnover. The increase in the VAT registration threshold to R2.3 million is a welcome and practical measure. This adjustment creates breathing room for entrepreneurs to reinvest in growth, strengthen resilience and focus on expansion rather than administration.

In practical terms, a business turning over R1.2 million in 2026 is a very different business to one turning over R1.2 million in 2009 — inflation has eroded the real value of that figure significantly. The threshold adjustment finally reflects economic reality.

Should you deregister? The decision is more complex than it looks

If your turnover now falls below R2.3 million and you are currently VAT registered,deregistration may look like the obvious next step. Before you do anything, understand the following.

The deemed output tax trap

Hidden within the VAT Act is a provision that can trigger a once-off VAT liability at the very moment a business exits the VAT system. Many vendors only become aware of this rule after they have already taken steps to deregister.

Under section 8(2) of the VAT Act, any vendor who deregisters becomes liable for deemed output tax on all assets and rights capable of assignment, cession, or surrender at the time of deregistration.

In plain language: when you deregister, SARS treats your business assets as if you sold them at market value on the date of deregistration, and charges you output VAT on that deemed sale — even though no actual sale occurred and you received no cash. If your business owns equipment, vehicles, stock, or property that were acquired with VAT input tax claims, you may owe a significant once-off VAT bill on deregistration.

While a business may now qualify to deregister because its turnover falls below the new threshold of R2.3 million, the VAT consequences of leaving the system remain unchanged. Until the position is clarified, vendors should approach VAT deregistration with caution. Stepping out of the VAT system may prove far more expensive than remaining in it.

The loss of input tax claims

Deregistering means you can no longer claim input VAT on business expenses like equipment, rent, or fuel. If you are a B2B business whose clients are VAT-registered themselves, this is particularly significant — your clients cannot claim input VAT on payments to you once you deregister, which may make you a less attractive supplier compared to VAT-registered competitors.

When deregistration does make sense

Deregistration is most likely to benefit your business if: you are primarily B2C (selling to individuals who cannot claim input VAT), your business has minimal assets on which input VAT was claimed, your clients are not VAT vendors themselves, and the administrative cost of VAT compliance is material relative to your turnover.

Ultimately, whether deregistration is beneficial will depend on the particular circumstances of each enterprise, including its pricing structure, client base and input tax position.

Get advice from a registered tax practitioner before deregistering. This is not a decision to make based on the headline threshold change alone.

How to deregister if you decide to

If you have assessed your situation and deregistration is the right decision, the process is as follows.

A vendor may apply to cancel its VAT registration if it no longer meets the requirements for compulsory or voluntary registration. An application must be submitted to SARS using the prescribed VAT123e form. The reasons for deregistration must be clearly stated, either within the form or in a supporting document. Once the application is processed, SARS will confirm the final tax period and provide guidance on your obligation to submit your last VAT return.

You continue to file and pay VAT normally until SARS confirms the cancellation date. Do not simply stop filing — this creates penalties and interest regardless of whether the deregistration is ultimately approved.

Where the value of your taxable supplies in the preceding 12 months is less thanR120,000, SARS will notify you of its intention to cancel your registration. If you agree with the notification, SARS will cancel the VAT registration from a future tax period and inform you of your final tax period and your obligation to submit your last VAT return.

How to register for VAT voluntarily

If your turnover is above R120,000 but below R2.3 million and you want to register voluntarily — because your clients are VAT vendors and being registered makes you more competitive — the process is straightforward.

Register via SARS eFiling at sarsefiling.co.za. You will need your income tax reference number, company registration documents, bank account details, and proof of your business activities. SARS has introduced enhancements to the VAT registration process from 8 December 2025, designed to provide applicants with clear, precise communication and ensure transparency and efficiency. The process is faster and more transparent than it previously was.

The Turnover Tax connection

One frequently overlooked aspect of this change: the threshold for Turnover Tax also increased to R2.3 million from 1 April 2026. Turnover Tax is a simplified tax regime for qualifying micro-businesses that calculates tax on turnover rather than profit, eliminating the need for complex profit-and-loss accounting.

The Turnover Tax threshold has aligned with VAT at R2.3 million, with the tax-free limit rising to R600,000. If your business qualifies for Turnover Tax — meaning you are not a personal service provider, you derive less than 20% of turnover from employment-type services, and you meet the ownership criteria — this regime may be significantly simpler and less costly than the standard corporate tax system. Consult a tax practitioner to check whether you qualify.

Frequently asked questions

I exceeded R1 million before 1 April 2026 but never registered for VAT. What happens now?

SMEs that exceeded the current VAT registration threshold of R1 million but not the newR2.3 million threshold, and who are not registered for VAT, may still have been required to register and account for VAT on their supplies until 31 March 2026, retrospectively from the date that threshold was exceeded. This is a legal risk that does not disappear automatically because the threshold changed. Seek advice from a tax practitioner on whether you have a historical VAT exposure and how to regularise it.

Does the threshold change mean I can charge customers without VAT immediately?

Not if you are currently registered. You remain a registered vendor until SARS formally cancels your registration. Continue charging and remitting VAT at 15% until you receive confirmation of deregistration.

My turnover varies year to year and sometimes goes above R2.3 million. Do I need to register?

Compulsory registration is triggered when taxable supplies exceed R2.3 million in any consecutive 12-month period — not just in a calendar year. If your rolling 12-month turnover crosses R2.3 million at any point, you are required to register within 21 daysof exceeding the threshold.

Can I be both on Turnover Tax and VAT registered?

Yes. Turnover Tax and VAT are separate systems. You can be on Turnover Tax while also being VAT-registered if you choose to register voluntarily or you exceed the VAT threshold.

What is the SARS interest rate if I underpay or pay VAT late?

From 2 March 2026, the SARS interest rate on late payment of VAT is 10.25% per annum.