JHB 
INSIGHTS
New VAT Registration Threshhold | Everything that you need to know as a SME
The 2026 Budget Speech introduced major changes to South Africa’s VAT registration thresholds, with the new limits taking effect from 1 April 2026. For many small and medium sized businesses, the announcement was welcomed as a move toward reduced administrative pressure and compliance costs. However, deciding whether to remain VAT registered or deregister requires careful consideration. For SMEs, the wrong decision could negatively impact profitability, pricing, cash flow, and even future growth opportunities.
What are the new VAT registration thresholds?
From 1 April 2026:
The compulsory VAT registration threshold increased from R1 million to R2.3 million
The voluntary VAT registration threshold increased from R50,000 to R120,000
This means that businesses with taxable turnover below R2.3 million may no longer be required to remain VAT registered. However, eligibility to deregister does not automatically mean that deregistration is the best business decision.
Will existing VAT vendors automatically deregister?
Why some SMEs may choose to remain VAT registered
Many SMEs assume that deregistering means immediate savings because they no longer need to charge VAT to customers. While this may sound attractive, the financial reality is often more complex.
Once deregistered, the business no longer charges output VAT, but it also loses the ability to claim input VAT on expenses and purchases. This can significantly impact operating margins, especially for businesses with high operating costs, large supplier expenses, equipment purchases, stock intensive operations and business expenses in general. The VAT previously claimed on these expenses now becomes an additional business cost.
Your customer base matters
One of the biggest considerations is the type of customers your business serves. If your customers are mainly private individuals or final consumers, deregistration may create a pricing advantage because customers do not claim input VAT anyway. In this scenario, slightly lower pricing may improve competitiveness.
If your clients are VAT registered businesses, the position changes significantly. These clients generally prefer dealing with VAT registered suppliers because they can recover the VAT paid.
If you deregister, your pricing may become less attractive, clients may resist price increases and your margins may shrink if you absorb the lost input VAT. For some SMEs, remaining VAT registered may still be commercially beneficial even below the new compulsory threshold.
Deregistration can trigger immediate VAT costs
This is one of the most overlooked risks. When a VAT vendor deregisters, SARS generally requires output VAT to be accounted for on assets held at the date of deregistration. This may include trading stock, equipment and machinery, vehicles, office equipment and fixed property. For businesses with significant assets, the VAT payable on deregistration can be substantial and may create unexpected cash flow pressure.
VAT registration can support business credibility
In practice, VAT registration often carries commercial value beyond tax compliance. Many larger organisations and corporate clients prefer working with VAT registered suppliers, view VAT registration as a sign of an established business and may require VAT registration for tenders or supplier onboarding. For growing SMEs, remaining VAT registered may support future expansion opportunities.
Important transitional rules
Businesses that exceeded the old R1 million compulsory registration threshhold before 1 April 2026 may still be required to register under the previous rules, even if they now fall below the new R2.3 million threshold. In some cases, registration may still need to proceed and deregistration would then need to be applied for separately after registration. This makes professional guidance particularly important during the transition period.
SMEs should avoid making rushed decisions
The increase in VAT thresholds creates opportunities for some businesses, but it also introduces important financial and operational considerations. Before deregistering, SMEs should carefully evaluate your customer profiles, pricing structures, profit margins, input VAT recovery, asset exposures, future growth plans and Government tender requirements.
At MMS Cloud Accounting, we assist SMEs with practical accounting, tax, and VAT guidance tailored to the realities of running a business. Before making any VAT registration or deregistration decisions, obtaining proper professional advice can help ensure the long-term financial impact is fully understood. To reach out to our team, visit our contact page.