The 2026 Budget changed the VAT landscape for South African small businesses more than any year since 2009. The compulsory registration threshold doubled from R1 million to R2.3 million, the voluntary threshold rose from R50,000 to R120,000, and Turnover Tax opened up to a much wider pool of businesses — all effective 1 April 2026. This guide works through what the changes mean for your business, including the deregistration decision thousands of owners are facing right now.
First: which businesses are affected?
- Turnover above R2.3 million — nothing changes. You must stay registered.
- Turnover between R1 million and R2.3 million — the big change. You were required to register under the old rules; now you’re not, and you can apply to deregister if staying registered doesn’t pay.
- Turnover between R120,000 and R1 million — you were already able to register voluntarily; the higher threshold doesn’t force anything, but it makes voluntary registration a cleaner choice.
- Turnover below R120,000 — outside the VAT system. Voluntary registration was possible from R50,000 before April 2026; the new R120,000 threshold moved the entry point up, so only businesses at or above R120,000 can choose to register.
The threshold is measured on taxable supplies — your standard-rated and zero-rated sales. Exempt supplies (financial services, residential rent, school fees) don’t count toward it.
Should you deregister?
If your turnover now sits below R2.3 million, deregistering is legal — but not always wise. Work through this list:
Arguments for deregistering:
- Your customers are consumers. You’re adding 15% to your prices for no commercial benefit, and it’s costing you margin or customers.
- Your purchases carry little VAT. If your costs are mostly labour, rent-free premises or exempt inputs, there’s little input tax to claim, so the “VAT neutral” claim doesn’t hold for you.
- The admin burden is real. Bi-monthly returns, five years of records, invoice requirements and audit risk — for a small operation that’s genuine cost.
Arguments for staying registered:
- Your customers are VAT-registered businesses. They claim the input tax on your invoices. Deregister, and you become 15% more expensive to them — or you have to cut your price by 13.04% to match, and lose the margin anyway.
- Your purchases carry significant VAT — stock, equipment, software, a high-VAT cost base. The input claims effectively discount your costs.
- You’re growing. Re-registering when you cross R2.3 million is paperwork plus the disruption of adding 15% to prices mid-contract.
One critical warning: deregistration is a tax event. Under section 8(2) of the VAT Act, the assets of your enterprise on which you claimed input tax — trading stock, equipment, property — are treated as a deemed supply at deregistration, and VAT may be payable on their value. Settle all outstanding returns first, then run the asset calculation before submitting form VAT123e. What looks like administrative relief can arrive with an unexpected VAT bill.
Turnover Tax: the other 2026 change
The 2026 Budget also doubled the Turnover Tax threshold from R1 million to R2.3 million, with a new tax-free threshold of R600,000. Turnover Tax is a simplified regime for micro and small businesses: one tax replaces income tax, provisional tax, capital gains tax and (if you don’t elect back into VAT) VAT itself.
For a business below R2.3 million, this is now a genuine option where it wasn’t before:
- turnover up to R600,000 — no Turnover Tax at all;
- above that, a sliding scale applies, capped at a maximum turnover of R2.3 million;
- you can still register for VAT under the regime if your customers need tax invoices.
It’s worth comparing Turnover Tax against normal income tax before choosing — the rates differ, and the regime suits businesses with low profit margins and simple structures. SARS publishes the current tables on its small-business pages.
Cash flow: the VAT you collect is not your money
The most common small-business VAT mistake is spending the output tax. When you collect R15,000 of VAT in a cycle, that’s SARS’s money sitting in your account until the 25th — not working capital. Businesses that treat it as revenue run out of cash precisely when the VAT201 comes due, then pay the 10% penalty plus 10.25% interest on top.
The flip side: in cycles where input tax exceeds output tax — a big stock purchase, an equipment buy — SARS owes you a refund. Filing on time matters even when you owe nothing: refunds are processed on declared returns, not on silence.
Common small-business mistakes to avoid
- Buying from unregistered suppliers. No tax invoice, no input claim. It’s often cheaper to pay a registered supplier 2% more and claim the VAT back.
- Quoting “plus VAT” to consumers. Unless your market is B2B, quote the inclusive price — the surprise 15% kills sales. See VAT-inclusive vs exclusive pricing.
- Forgetting the 21-business-day clock. The month your taxable turnover crosses R2.3 million, the registration clock starts. Late registration attracts penalties from the date it should have happened.
- Rounding the total instead of the VAT. SARS expects the VAT portion rounded to the nearest cent per line; rounding the final total can cause cent-level mismatches that draw audit attention.
- Treating zero-rated as exempt. Both carry no VAT, but zero-rated sales (basic foodstuffs, exports, paraffin) stay on your return — and the input tax on related costs remains claimable. Missing either direction changes what you owe.
Where to verify
- SARS — Small Business Taxpayers — the new VAT and Turnover Tax thresholds.
- SARS — Value-Added Tax — deregistration (VAT123e) and the VAT 404 guide.
- SARS — Budget 2026 FAQs — official confirmation of every 2026 change.
Registration and deregistration both start with the same question — what does VAT do to your numbers? Calculate it with the VAT calculator, then read how to register for VAT or how VAT works for the process behind the decision.