The recent increases in the compulsory VAT registration threshold to R2.3 million and in the voluntary registration threshold to R120,000 are widely welcomed. It will certainly ease the administrative burden on small businesses and the strain on their cash flow.
Businesses that do not exceed the higher threshold on 1 April 2026 may apply to deregister for VAT. But be certain to rely on our expertise when making this decision, as it’s fraught with potentially costly consequences.
“Renette Oosthuizen, small business owner from Gauteng, had this tip: ‘Minister Godongwana, please increase the VAT registration threshold for small businesses to R2 million. The R1 million threshold has not kept pace with the cost of doing business.’” (Budget Speech 2026)
Some of the best news in the 2026 Budget is the proposed increases in the compulsory VAT registration threshold from R1 million to R2.3 million and in the voluntary registration threshold from R50,000 to R120,000, with effect from 1 April 2026.
This will immediately ease the disproportionate administrative burden and compliance cost on small businesses which would have had to register soon. What’s more, VAT registered businesses may apply to deregister for VAT if they no longer exceed the increased compulsory registration threshold on 1 April 2026.
Deregistering for VAT can improve cash flow. But it’s a decision that should not be taken without consulting us, as it can trigger substantial adverse tax consequences that might well convince you not to deregister.
Reduced admin and costs
The compulsory registration threshold had not been adjusted for inflation since 2009. The new R2.3 million threshold, which slightly outstrips inflation, will ease the previously disproportionate compliance burden relative to turnover on smaller businesses. It may also spur unrestrained growth among many small businesses which felt forced to contain themselves to avoid the VAT net and its never-ending impact on admin and cashflow.
Option to deregister
Given the above, many small businesses will be keen to deregister for VAT. The good news is that it is possible for VAT registration to be cancelled – provided certain requirements are met. The first is that all outstanding liabilities and obligations in terms of the VAT Act have been resolved or settled.
The Commissioner will issue a notice of cancellation of registration which will also inform the vendor of the date on which the cancellation takes effect and the final VAT period.
SARS says output VAT on certain assets on hand at the time must also be declared together with any other output tax and input tax in the VAT return for that final tax period. In other words, you must declare the amount of output VAT on the value of the business’ assets at the date of deregistration and pay this over to SARS.
There is also a general unpaid-creditor claw-back provision that requires a vendor to reverse previously claimed input VAT by accounting for output VAT on amounts due to creditors but not paid within 12 months of the date they became payable. This rule applies throughout the VAT registration period but is also triggered immediately before a vendor ceases to be registered.
Commonly referred to as “exit VAT”, this can cause immediate and possibly substantial financial implications that could strain your cashflow.
Before deregistering
If you are interested in deregistering for VAT, we urge you to speak to us to ensure you fully understand the financial implications and can carefully plan the timing to avoid tax surprises and cash flow problems.
