For the first time in 17 years, the goalposts for small businesses in South Africa have shifted. As of 1 April 2026, the compulsory VAT registration threshold has increased from R1 million to R2.3 million. This change finally acknowledges how much the cost of doing business has increased since 2009.

While this may feel like relief for business owners dealing with monthly VAT submissions and admin, it is not a simple opt-out. This change requires a deliberate decision. For many businesses, it comes down to one thing: how it affects your cash flow and pricing structures.

Registered vs unregistered: Consider your business model

Deciding whether to stay registered for VAT or deregister is not about the R2.3 million threshold alone. It depends on who your customers are and what your cost structure looks like.

If you are a consultant or service provider with low overheads and mainly serve private individuals, deregistering could improve your pricing. You can either reduce your price by 15% or retain that margin.

However, if you sell to VAT-registered businesses, deregistering can work against you. Your clients will no longer be able to claim input VAT on your invoices, which effectively increases your cost to them. In a competitive B2B environment, this can make your services more expensive than VAT-registered competitors, which can lead to lost work and strain existing client relationships.

The hidden cost of deregistering

When you deregister, there is a hidden tax consequence that many businesses overlook.  SARS handles VAT deregistration as if you have sold your business assets to yourself at market value. This creates a “deemed supply,” which means output VAT becomes payable on your equipment, vehicles, and stock. While it may reduce admin, deregistering can create an immediate cash obligation.

Deregistration is also not automatic. The vendor must apply to SARS and satisfy the requirements set out in section 24(1) of the VAT Act before deregistration will be approved.

Before you decide to deregister for VAT, consider the following:

• Input tax recovery: Will losing VAT claims on rent, fuel, and assets increase your costs?
• Customer base: Will your clients be negatively affected if you stop issuing VAT invoices?
• Administrative cost: Is the compliance burden significant enough to justify deregistration?
• Exit tax liability: Do you have the cash available to settle VAT on your assets when you exit the system?

Voluntary registration: A strategic cash flow tool

The voluntary VAT registration threshold has increased from R50,000 to R120,000. This is particularly relevant for businesses that require upfront investment.

If your business is spending heavily on equipment, infrastructure, or setup costs, registering for VAT early allows you to recover input VAT. This can ease pressure on cash flow during the early stages of the business. For startups, this is not about compliance; it is about funding. VAT recovery can make a meaningful difference when business capital is tight.

Based on facts, not thresholds

The 2026 VAT threshold change is not just a regulatory update. It is a strategic crossroad for business owners. Whether you remain registered, deregister, or register voluntarily, the right choice depends on your numbers, your clients, and your cost structure. There is no one-size-fits-all answer. The focus should be clear: Choosing a VAT framework that supports your cash flow, keeps your pricing competitive, and aligns the outcome with how your business operates.

While every reasonable effort is taken to ensure the accuracy and soundness of the contents of this publication, neither the writers of articles nor the publisher will bear any responsibility for the consequences of any actions based on information or recommendations contained herein. Our material is for informational purposes.