The VAT threshold moved to R2.3 million. Deregistering might cost you money.

What changed

From 1 April 2026, the compulsory VAT registration threshold rose from R1 million to R2.3 million in annual taxable supplies. The voluntary threshold rose from R50,000 to R120,000. The turnover tax threshold moved to R2.3 million as well.

This is the biggest change to the South African small business tax perimeter in years, and it's been oddly under-covered. Roughly speaking, every business turning over between R1 million and R2.3 million is now sitting above the old compulsory line and below the new one.

Your registration isn't cancelled automatically

There's a common misreading here, so let's be precise.

• If your taxable supplies over the last 12 months are under R120,000, SARS will notify you of its intention to cancel. You can object using an ADR1 within 80 business days.
• If your taxable supplies are between R120,000 and R2.3 million, nothing happens automatically. Your registration stands. You may cancel it, but SARS won't do it for you.

Either way, until the cancellation is actually processed you must keep charging VAT, keep submitting VAT201 returns, and keep accounting for output and input tax. Stopping early because you assume you've fallen out of the system is how you generate penalties.

To cancel voluntarily you complete a VAT123e (or a VAT123T for a separately registered enterprise), addressed to the branch where you're registered.

The bill nobody budgets for: deemed exit VAT

Here's the part that turns a paperwork decision into a cash decision.

When your VAT registration is cancelled, you must account for VAT on the enterprise assets and rights you still hold on the day you exit. SARS calls this the deemed exit VAT. You've been claiming input tax on your business assets for years on the basis that you're a vendor. When you stop being a vendor, SARS reclaims that benefit on whatever you're still holding.

You declare the value in field 1A and the output tax in field 4A of your final VAT201.

What gets caught:

• Trading stock on hand at the deregistration date
• Fixed assets — equipment, office furniture
• Any property used in your enterprise
• Rights acquired or used for making taxable supplies where input tax was deducted

Valuation is at the lesser of cost or open market value. Cost includes the VAT you paid on acquisition, manufacture, construction or production, plus additional costs.

What escapes:

• Goods and services on which input tax was denied in the first place — entertainment, motor cars
• Donated assets, or assets acquired for no consideration (their cost is treated as zero)
• Assets used wholly for exempt or non-taxable activities

Three other things to weigh

You lose the right to claim input tax. Every VAT-inclusive rand you spend on fuel, materials, tools and stock becomes a real cost rather than a partly recoverable one. If you're an input-heavy business buying from VAT-registered suppliers, the input tax you currently reclaim may well exceed the admin cost of staying registered.

Your customers may care. If you sell to other VAT vendors, they claim the VAT you charge them, so your price is effectively 15% lower to them than to a private consumer. Deregister and you become a slightly awkward supplier who can't give them an input tax deduction. B2B businesses should think hard about this. B2C businesses selling to the public generally shouldn't worry — a private consumer can't claim the VAT anyway, and your prices can come down.

Check you're not about to cross back over. SARS offers a useful test: look at your last 12 months. If you've exceeded monthly taxable supplies of R191,667 and nothing suggests that will change, you're likely liable for compulsory registration anyway. Deregistering and re-registering a few months later, having paid exit VAT along the way, is the worst of all outcomes.

If you never registered when you should have

Important, and separate: the threshold increase is not an amnesty.

If you previously exceeded the old R1 million compulsory threshold and failed to register, SARS may backdate your registration to the date you first became liable, with penalties and interest. The fact that the threshold is now R2.3 million does not retrospectively excuse the period when it was R1 million.

SARS directs anyone in that position to the Voluntary Disclosure Programme. The timing rules are worth understanding properly, because they're widely misstated in both directions. A VDP application isn't blocked simply because SARS is running a verification — SARS distinguishes verifications from audits, and a verification is not an audit. But once you've been given notice that an audit or criminal investigation has commenced into the same default, the law treats your disclosure as not voluntary, and relief becomes discretionary: a senior SARS official must be satisfied the default wouldn't otherwise have been detected and that accepting it serves the fiscus. There's a second trap too — if you only became aware of the default because of SARS's enquiry, it isn't a voluntary disclosure at all.

The practical reading: if you know you crossed R1 million and never registered, the cheap window is open while the discovery is still genuinely yours. It narrows sharply the moment SARS opens an audit.

The record-keeping point everyone skips

Whether you stay registered or exit, one obligation doesn't change: you still have to keep the records.

If you exit, you must still substantiate the input tax you claimed historically. SARS can audit prior periods, and the five-year retention rule applies to the years you were a vendor regardless of your status today. Note that five years is a floor, not a ceiling: if SARS has notified an audit or investigation, or an assessment is in dispute, you must keep the records until that's concluded. Deregistering doesn't let you throw the slips away.

If you stay registered, you keep needing valid tax invoices for every input tax claim. SARS doesn't accept a schedule or a list — it wants the actual documents. A faded thermal slip from a fuel station that you can't produce is simply a deduction you don't get. Here's exactly what SARS requires you to keep →

That's the unglamorous core of VAT compliance. The threshold moved. The paperwork didn't.

This article is general information, not tax advice. The deregistration decision has real cash consequences and depends on your asset base, customer mix and input profile. Speak to a registered tax practitioner before you file a VAT123e.