For seventeen years, the line that decided whether a South African small business had to register for VAT sat frozen at R1 million in annual turnover. Prices rose, costs rose, wages rose — and that threshold never moved. A hairdresser, a bookkeeper, or a small retailer could cross into compulsory VAT registration simply because inflation pushed their revenue past a number set back when smartphones were a novelty.
That changed with South Africa's 2026 Budget. Effective 1 April 2026, the compulsory VAT registration threshold jumped from R1 million to R2.3 million — and the voluntary registration threshold more than doubled too, from R50,000 to R120,000. The turnover tax qualifying threshold for micro businesses rose in step, also to R2.3 million, with a new R600,000 tax-free band built in.
If you run a small business in South Africa, this is one of those quiet policy changes that can meaningfully change your monthly admin load, your pricing, and possibly your tax bill. Here's what actually changed, who it affects, and how to think through the decision it hands you.
The Numbers, Side by Side
| Threshold | Old | New (from 1 April 2026) |
|---|---|---|
| Compulsory VAT registration | R1,000,000 | R2,300,000 |
| Voluntary VAT registration | R50,000 | R120,000 |
| Turnover Tax qualifying limit | R1,000,000 | R2,300,000 |
| Turnover Tax tax-free band | — | R0 – R600,000 |
The compulsory threshold is the one that matters most immediately: if your business's taxable turnover is expected to exceed R2.3 million in a 12-month period, you must register for VAT. Below that line, registration becomes optional rather than mandatory. That's a substantial shift — a business turning over R1.5 million, which was required to register under the old rule, is no longer obligated to under the new one.
Why the Change Happened
Finance Minister Enoch Godongwana framed the increase around compliance costs that had become disproportionate to the size of the businesses being asked to bear them. VAT registration isn't just a form you file once — it means monthly or bi-monthly VAT201 returns, output tax calculated on every invoice, input tax reconciled against every purchase, and a paper trail robust enough to survive a SARS audit. For a genuinely small operation — a solo consultant, a market-stall trader, a two-person design studio — that compliance overhead can cost more in bookkeeper or accountant fees than the VAT system nets the fiscus in any given business's contribution.
By resetting the threshold to reflect seventeen years of inflation and cost-of-doing-business increases, the Budget effectively removes a large number of small businesses from the compulsory system while leaving the door open for anyone who wants to stay in it.
Turnover Tax Gets a New Tax-Free Band
The turnover tax system — a simplified presumptive tax for micro businesses (sole proprietors, partnerships, close corporations, companies, and cooperatives with qualifying turnover) — moved in lockstep with the VAT threshold, also rising to R2.3 million. But the more interesting change is the new R600,000 tax-free band underneath it.
For the year of assessment running 1 March 2026 to 28 February 2027, the turnover tax brackets look like this:
| Annual Turnover | Tax Rate |
|---|---|
| R0 – R600,000 | 0% |
| R600,001 – R950,000 | 1% of the amount above R600,000 |
| R950,001 – R1,400,000 | R3,500 + 2% of the amount above R950,000 |
| R1,400,001 – R2,300,000 | R12,500 + 3% of the amount above R1,400,000 |
A business turning over R600,000 or less now owes nothing under turnover tax — a meaningful floor for the smallest operators, many of whom previously paid tax on revenue well below what most people would consider a living income for the owner.
The Decision Every Currently-Registered Business Now Faces
Here's the part that actually requires a decision, not just an update to your records: if your business is currently VAT-registered and your turnover falls below R2.3 million, you now have a genuine choice about whether to deregister.
That choice isn't automatic, and tax advisors are cautioning against a reflexive "deregister and save the admin" response. It depends heavily on your specific business model:
Reasons to consider staying registered:
- You have significant input tax to claim. If your business carries meaningful VAT-bearing costs — inventory, equipment, subcontracted services, commercial rent — staying registered lets you keep recovering that VAT. Deregistering means eating that cost instead.
- Your customers are VAT-registered businesses. A B2B supplier whose clients can claim back the VAT on your invoices loses little by staying registered — and deregistering can make your pricing look 15% more expensive to a VAT-registered buyer who can no longer claim the input credit.
- You expect to grow past the threshold again soon. Deregistering and re-registering isn't free — it involves its own paperwork and, per SARS rules, a deemed output tax event on business assets still on hand at deregistration.
Reasons to consider deregistering:
- You sell mainly to consumers or non-VAT-registered clients. If your customers can't claim input tax regardless of whether you charge VAT, being VAT-registered gains you nothing on the sales side — it just adds 15% to what you have to charge, or eats 15% of your margin if you hold price.
- You're a service business with low input costs. Consultants, coaches, and personal-service providers (the Cliffe Dekker Hofmeyr guidance specifically flags medical practitioners and consultancies here) typically have few VAT-bearing expenses to reclaim, so the input tax benefit of staying registered is minimal.
- The compliance burden is disproportionate to your revenue. If you've been paying an accountant or bookkeeper a meaningful chunk of your margin just to file VAT201 returns correctly, that's the exact administrative burden this reform was designed to relieve.
There's no universal right answer — it depends on your pricing structure, client base, and input tax position, and it's worth running the actual numbers (or getting a tax professional to run them) before deregistering, since the deemed output tax on deregistration can be a real cost if you're holding significant stock or equipment.
What About Businesses Growing Toward the New Line?
If you're a business currently sitting between the old R1 million threshold and the new R2.3 million one — meaning you registered for VAT under the old rules but wouldn't have been required to under the new ones — you're not automatically deregistered. VAT registration doesn't expire on its own; you'd need to actively apply to SARS to deregister, and SARS will assess whether it's appropriate based on your specific circumstances.
If you're a growing business that hasn't yet crossed R1 million, you now have considerably more runway before compulsory registration kicks in — which means more months of operating without VAT-return admin, but also more months without the ability to reclaim VAT on your own purchases unless you opt into voluntary registration (now available from R120,000 in turnover, versus the old R50,000 floor).
Getting the Bookkeeping Right During the Transition
Whichever way you land on the registration question, the accounting mechanics of a VAT status change deserve care. A few practical points:
- Timing matters. VAT deregistration takes effect from a specific date SARS approves — not the date you decide you want out. Keep charging and remitting VAT correctly until that date is confirmed, or you'll create a reconciliation headache.
- The deemed output tax on deregistration is real money. SARS treats deregistration as a deemed supply of the business assets you're still holding, meaning you may owe output tax on inventory, equipment, or property still on the books. Get a number before you commit.
- Your invoicing templates need to change the same day your status changes. Continuing to charge VAT after deregistering (or failing to charge it while still registered) creates errors that are painful to unwind months later.
- Keep historical VAT records regardless. SARS retention requirements for VAT records don't disappear just because you deregister — you'll still need five years of records available for the periods you were registered.
This is exactly the kind of transition where clean, auditable books pay for themselves. If your VAT status changes mid-year, you want a ledger that shows precisely which invoices were issued under which regime, with no ambiguity about when the switch happened — something that's much easier to get right when your accounting records are structured and version-controlled rather than reconstructed from memory during an audit.
The Bigger Picture
This threshold increase sits alongside other SME-focused Budget 2026 measures, including a jump in the capital gains tax exemption for small business owners selling their businesses (from R1.8 million to R2.7 million). Read together, the direction of travel is clear: South African tax policy is trying to reduce the compliance drag on genuinely small operators while leaving the door open for businesses that want the benefits of formal VAT registration to keep them.
For most small business owners, the practical takeaway is simple: this is a good moment to revisit your VAT registration status, run the actual numbers on input tax versus compliance cost, and make a deliberate choice rather than defaulting to whatever your status happened to be before 1 April 2026.
Keep Your Books Ready for Whatever You Decide
Whether you stay VAT-registered or deregister under the new threshold, the underlying need doesn't change: clear, accurate records of every transaction, tax treatment, and status change. Beancount.io offers plain-text accounting that gives you complete transparency and control over your financial data — no black boxes, no vendor lock-in, and a full audit trail if SARS ever asks how you handled the transition. Get started for free and see why developers and finance professionals are switching to plain-text accounting.