The VAT Threshold Has Changed: Should Your Business Deregister?

The 2026 Budget raised the VAT registration threshold to R2.3 million. But walking away from the VAT system is not as simple as it sounds. Here is what every South African business owner needs to know before making a move.

A Long-Awaited Change With Important Fine Print

On 25 February 2026, Minister of Finance Enoch Godongwana delivered one of the most business-friendly VAT announcements in nearly two decades. The compulsory VAT registration threshold, unchanged at R1 million since 2009, was increased to R2.3 million per annum, effective 1 April 2026.

At the same time, the voluntary VAT registration threshold was raised from R50 000 to R120 000.

For thousands of South African businesses operating between R1 million and R2.3 million in annual taxable turnover, this change raises an immediate and important question: now that VAT registration is no longer compulsory for us, should we deregister?

The short answer is: it depends. The consequences of getting it wrong can be costly. Here is a clear, fact-checked breakdown of what the change means and what your business should consider before taking any action.

What Has Actually Changed

Under the Value Added Tax Act 89 of 1991 (the VAT Act), any person carrying on an enterprise whose total value of taxable supplies exceeded R1 million in any 12-month period was previously required to register as a VAT vendor with SARS. Failure to register on time could result in retrospective registration, penalties and interest.

From 1 April 2026, the compulsory registration threshold is R2.3 million. This means:

• Businesses with annual taxable supplies below R2.3 million are no longer required to be VAT-registered
• Businesses between R120 000 and R2.3 million may choose to register voluntarily, or remain registered voluntarily if already on the system
• Businesses below R120 000 in taxable supplies will have their VAT registrations cancelled by SARS. Voluntary registrations are not cancelled automatically, but SARS will notify you of its intention to cancel

Importantly: businesses that exceeded R1 million before 1 April 2026 but had not yet registered were still required to account for VAT retrospectively up to 31 March 2026. The new threshold only applies from 1 April 2026 onwards.

Who Can Apply to Deregister?

In terms of section 24(1) of the VAT Act, a registered vendor may apply to the Commissioner of SARS to cancel its VAT registration if the value of its taxable supplies in any consecutive 12-month period will not exceed the compulsory registration threshold, now R2.3 million.

The application process requires you to:

• Complete and submit a VAT123e form (Application for Cancellation of Registration in Respect of Enterprises), available on the SARS website or via eFiling
• Clearly state the reasons for deregistration, either on the form or in a supporting letter
• Provide evidence that your future taxable turnover will fall below R2.3 million. This may include recent financial statements, management accounts or a credible business forecast
• Continue charging and declaring VAT on all supplies until your final tax period, as confirmed by SARS in an acknowledgment letter
• Submit your final VAT 201 return and settle all outstanding VAT liabilities before the cancellation is finalised

SARS cannot finalise deregistration until all outstanding liabilities and obligations under the VAT Act have been resolved. Once approved, SARS will issue a formal VAT deregistration confirmation with an effective date. From that point, you may no longer charge VAT or claim input VAT.

The Hidden Cost Most Businesses Do Not Know About

Deregistration is not a simple administrative action. It is a tax event, and it comes with an immediate VAT cost that catches many business owners by surprise.

When a vendor deregisters, the VAT Act deems that the business has made a taxable supply of all enterprise assets still on hand at the date of deregistration. This is the deemed supply rule, which arises under section 8(2) of the VAT Act.

In plain language: SARS will assess output VAT at 15% on the open market value, or the cost, whichever is lower, of your qualifying business assets on the deregistration date. These assets typically include:

• Trading stock on hand
• Equipment, machinery, vehicles and other fixed assets on which input VAT was previously claimed
• Rights acquired for the purpose of making taxable supplies

Only assets on which input tax was previously deducted are included. Assets used exclusively for exempt or non-taxable activities are excluded. However, for most businesses with even modest equipment or stock, the total value and the resulting output VAT bill can be significant.

This output VAT must be declared in your final VAT 201 return, in fields 1A and 4A. SARS has confirmed that the liability may be paid in six equal monthly instalments. The obligation itself cannot be avoided.

The Strategic Questions to Ask Before Deciding

Beyond the immediate tax cost, consider the following before deregistering:

1. Who are your clients?

If the majority of your clients are VAT-registered businesses, they rely on your tax invoice to claim their own input VAT. Deregistering means you can no longer issue a valid VAT invoice, which may make your business less competitive, especially in B2B markets. Larger businesses and government entities often prefer to deal with registered vendors.

2. What do you spend money on?

As a registered vendor, you claim back the 15% VAT on qualifying business expenses. Once deregistered, that 15% becomes a permanent cost. If you have high recurring expenses such as equipment, rent, software or professional services, the loss of input tax credits may outweigh the admin savings.

3. Are you planning major asset purchases?

If a significant capital purchase is planned in the next 12 to 24 months, remaining registered allows you to claim the input VAT on that purchase. Deregistering before a large acquisition can be financially costly.

4. Is your turnover temporarily low, or structurally below R2.3 million?

A business experiencing a temporary dip in turnover may exceed R2.3 million again within 12 to 18 months. SARS would then require re-registration, and re-registering after deregistration triggers additional compliance requirements. Repeated registration and deregistration is both costly and administratively complex.

5. Are you making zero-rated supplies?

Vendors whose supplies are primarily zero-rated, such as certain exporters, are typically always in a VAT refund position with SARS. Deregistering would remove this benefit entirely. Remaining registered is almost always preferable for zero-rated vendors.

For Whom Deregistration Makes Sense

Despite the complexities, deregistration is the right decision for some businesses. In particular:

• Businesses that primarily serve final consumers rather than other VAT-registered entities, where the loss of a VAT invoice has no commercial impact
• Businesses with minimal enterprise assets, so the deemed supply VAT liability at deregistration is low
• Businesses where the VAT compliance burden, including two-monthly returns, detailed record-keeping and reconciliations, is genuinely disproportionate to the turnover and benefit received
• Businesses with stable, structural turnover below R2.3 million with no realistic prospect of exceeding the threshold in the near term

Our Recommendation: Seek Advice Before Acting

The VAT threshold increase is genuinely good news for small and medium businesses in South Africa. But the deregistration decision requires a proper analysis, not a quick assumption based on the headline figure.

At nhb accounting, we work with SMEs, family businesses, group companies and trusts to navigate exactly these kinds of decisions with clarity and confidence. We review your financial position, asset values, client base and growth trajectory before recommending a course of action.

This is a material decision. It deserves a proper conversation.