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New VAT registration rules – What you need to know
- 30 March 2026
- VAT
- Christo Theron
The recent announcement by the Minister of Finance in the 2026 budget speech that the registration thresholds for VAT will be increased with effect from 1 April 2026, has been widely welcomed. Careful consideration should however be given to the impact of the changes before any action is taken.
Introduction
The Minister of Finance announced in his 2026 budget speech that the compulsory registration threshold will be increased to R2.3 million and the voluntary registration threshold to R120 000.
Careful consideration should be given to the impact of the increased thresholds as it will primarily impact small and micro businesses that do not necessarily have access to professional VAT consultants and knowledge.
This article touches on some of the issues that need to be considered.
Must a VAT registered vendor deregister as a VAT vendor?
Provided that a registered VAT vendor makes annual taxable supplies of more that R120 000 after 1 April 2026 it will not be required to deregister as a VAT vendor. It will be re-classified as a vendor registered on the voluntary basis which has the option of deregistering as a VAT vendor.
Is it advisable to deregister as a VAT vendor?
The mere fact that a VAT vendor will be eligible to deregister as a VAT vendor, does not mean that it would be beneficial for the person to deregister. There are various issues that need to be considered before an informed decision can be made.
Financial considerations
From a financial perspective, once deregistered, the supplier will no longer be required to levy output tax on its goods and services, but will also not be entitled to any input tax deductions with regard to goods and services acquired to make taxable supplies. The input tax deductions lost will therefore have to be recovered in the price charged after deregistration to ensure that the gross margin of the supplier is not eroded.
If the supplier supplies goods or services to final consumers that are not entitled to input tax deductions, a higher price (but less than the previous VAT-inclusive price) will probably be acceptable as the cost to the end consumer will result in a saving. If however, a supplier supplies goods or services to clients that are entitled to input tax deductions, the higher price on which no input tax can be claimed will probably be resisted and the supplier will have to absorb the cost of no longer being entitled to claim input tax deductions on goods or services acquired to make supplies. This will result in an erosion of the operating margin achieved while being VAT registered.
Furthermore, on deregistration the VAT vendor will be required to account for output tax on all assets held at the time of deregistration. If the assets include significant items of plant, machinery, trading stock or fixed property, the amount that will have to be refunded to SARS may be prohibitive.
Other considerations
Many large organisations only conduct business with VAT registered entities as being VAT registered is considered an indication of a bona fide businesses being carried on. In many instances tenders may also not be submitted without being VAT registered.
Applications for registration already in process
Where a person has applied for registration under the R1 million compulsory registration rule but has not been registered by 1 April 2026, or the person has not applied for registration but has exceeded the compulsory registration threshold of R1 million in any 12-month period prior to 1 April 2026, the person remains liable to register as a VAT vendor under the pre-1 April 2026 rules. The person will therefore have to register and apply for the deregistration after 1 April 2026.
Summary
There are numerous issues that need to be considered before a person deregisters as a VAT vendor, or decide not to register even though they may have exceeded the pre-1 March 2026 compulsory registration threshold of R1 million prior to April 2026.
This webinar will address these challenges to provide a clearer understanding of the complexities involved. Click here to register.