VAT registration in South Africa: when you must, when you should, when you can now deregister

Updated for the 1 April 2026 threshold changes

Digital Treehouse · SAIPA registered

VAT registration is one of those compliance milestones that catches South African business owners off guard. Either they miss the mandatory threshold and face penalties, or they register too early and create unnecessary admin before the business is ready. From 1 April 2026, the rules changed materially — and for many SMEs sitting between R1 million and R2.3 million in turnover, there is now a window to deregister that did not exist three months ago.

Getting the timing right matters more than ever. Here is the current position.

What changed on 1 April 2026

In the February 2026 Budget Speech, the Minister of Finance announced the first increase in the VAT registration thresholds in 17 years:

• Compulsory registration threshold: R1 million → R2.3 million in any consecutive 12-month period
• Voluntary registration threshold: R50,000 → R120,000 in any consecutive 12-month period
• Effective date: 1 April 2026

The R1 million ceiling had been in place since 2009. Inflation in the years since meant a R1 million business in 2026 was a fraction of the operation it was when the threshold was first set. The increase brings the threshold closer to its inflation-adjusted level.

This change does three things at once: it raises the entry point for new compulsory registrations, it opens a deregistration window for some existing vendors, and it forces deregistration for voluntary vendors below the new R120,000 floor.

The compulsory threshold

Once your taxable turnover exceeds R2.3 million in any consecutive 12-month period, VAT registration with SARS is compulsory. The clock is not tied to your financial year — SARS looks at any rolling 12-month window.

The compliance trigger is specific: you must apply for registration within 21 business days of the date your taxable supplies exceed, or are expected to exceed, R2.3 million. Miss that window and SARS will backdate your registration to the date you became liable.

The cost of backdated registration is significant:

• Output VAT on all sales made since the liability date, calculated at 15/115 of the total — regardless of whether you charged VAT or not
• A 10% late payment penalty on the outstanding VAT
• Daily interest at the prescribed rate

There is one relief route. If you voluntarily disclose the failure to register through the SARS Voluntary Disclosure Programme (VDP) — and you begin the VDP process within 21 days of receiving your VAT number — the 10% penalty can be waived. This only works if you come forward before SARS finds you.

The voluntary threshold

You can register voluntarily once your taxable turnover exceeds R120,000 in any 12-month period, or where you reasonably expect to exceed it in the 12 months following your application.

The case for voluntary registration has not changed in principle, but the higher floor makes the decision sharper:

• If you sell predominantly to VAT-registered businesses, voluntary registration lets you charge VAT — which costs your customers nothing because they reclaim it — and lets you reclaim input VAT on your own purchases. For capital-intensive businesses, the input VAT alone can justify early registration.
• If you sell predominantly to private individuals, adding 15% VAT either shrinks your margin or raises your price by 15%. For consumer-facing businesses still building scale, waiting until the compulsory threshold remains the right call.

What you can do now: the deregistration window

This is the change most owners have not thought through carefully enough.

If you are currently a VAT vendor and your taxable supplies are below R2.3 million, you are no longer required to be registered. You can apply to deregister using form VAT123e under section 24 of the VAT Act.

Voluntary vendors below the new R120,000 floor are not given a choice — SARS will notify you of its intention to cancel your registration, and you will need to deregister.

Before you apply, you need to understand the trap that catches most owners: exit VAT.

When you deregister, SARS treats you as having made a supply of all the business assets you still hold, at market value, on the day you cease to be a vendor. You owe output VAT on that deemed supply in your final VAT return. For service businesses with few assets, this is small. For businesses holding stock, vehicles, equipment, or capitalised tools, exit VAT can be the cost that makes deregistration uneconomical even though the threshold change technically permits it.

A practical framework for the decision:

| Factor | Lean towards staying registered | Lean towards deregistering | |---|---|---| | Your clients are VAT-registered businesses | ✓ | | | Your clients are private individuals | | ✓ | | You hold significant capital assets (exit VAT will bite) | ✓ | | | You have ongoing input VAT to reclaim | ✓ | | | Your turnover is volatile around R2.3 million | ✓ (avoid re-registration churn) | | | Your turnover is steady and well below R2.3 million | | ✓ |

If the exit VAT liability is material, SARS allows payment in up to six equal monthly instalments. Until SARS issues a formal cancellation notice with an effective date, you remain a VAT vendor — charging VAT, issuing tax invoices, and submitting returns.

What changes when you register

VAT registration means you are now a tax collection agent for SARS. Every invoice you issue to VAT-registered customers must include the correct output VAT. At the end of each tax period, you submit a VAT201 return and pay the difference between your output and input VAT.

Your tax period category depends on your turnover:

• Bi-monthly (Category A or B): the default for turnover below R30 million
• Monthly (Category C): required where turnover exceeds, or is likely to exceed, R30 million
• Six-monthly (Category D): farming businesses with turnover below R1.5 million
• Twelve-monthly (Category E): inter-group letting or administration companies

SARS allocates your category. You can apply to change it, but the default is not aligned to your financial year. Knowing when your VAT periods fall matters for cash flow planning — VAT remittances are real cash out of your business, and if they are not modelled into your cash flow forecast, they will surprise you.

The return and payment deadline is the 25th of the month following the end of the tax period, or the last business day of that month if you submit and pay via SARS eFiling.

What makes a tax invoice valid

You cannot claim input VAT without a valid tax invoice. SARS sets the content requirements under section 20(4) of the VAT Act, with two thresholds.

For supplies over R5,000 (full tax invoice):

• The words "Tax Invoice", "VAT Invoice", or "Invoice"
• Supplier's name, address, and 10-digit VAT registration number
• Recipient's name, address, and VAT registration number
• A unique serial number
• The date of issue
• A description of the goods or services
• The quantity or volume
• The value of the supply, the VAT amount, and the total — or a statement that VAT is included and the rate at which it was charged

For supplies between R50 and R5,000 (abridged tax invoice):

• All of the above except the recipient's name, address, and VAT number

For supplies of R50 or less:

• A tax invoice is not required, but you must keep a supporting document (a till slip or sales docket) showing the VAT charged

A pro forma, a quotation, a statement, or a bank payment confirmation is not a tax invoice. SARS will disallow input VAT claims that are not supported by a valid invoice — and they do check.

Common mistakes

• Not registering a separate VAT number for each legal entity. If you operate through more than one company or trust, each is a separate VAT vendor. Personal and business VAT cannot be mixed.
• Claiming input VAT on entertainment. The VAT Act specifically disallows input tax deductions on entertainment — client lunches, staff functions, coffee meetings.
• Missing the reverse charge on imported services. Google Ads, Meta Ads, Microsoft 365, and similar foreign-supplied digital services trigger 15% reverse-charge VAT, declarable on your VAT201.
• Sitting on a deregistration decision past the point where exit VAT changes. Asset values move. So does the case for staying in or out.
• Assuming voluntary deregistration is automatic. It is not. You apply via VAT123e and continue to operate as a VAT vendor until SARS issues a formal cancellation notice.

How we handle it

VAT compliance is not complicated, but it requires consistency. We handle the SARS registration and deregistration process end-to-end, advise on the right liability or cessation date, structure invoicing and accounting correctly from day one, and review every client's VAT position quarterly as part of our Peace of Mind service — so nothing slips through.

If your turnover is approaching R2.3 million, or you are sitting between R1 million and R2.3 million wondering whether deregistration makes sense, the time to model the exit VAT and run the numbers is now — not after a SARS query or a cash flow surprise.