South Africa’s VAT line just moved, but the new number does not settle the argument. From 1 April 2026, a business will only be forced into VAT once its annual taxable supplies pass R2.3 million, up from R1 million. The voluntary entry point also rises, from R50 000 to R120 000. This gives smaller firms more room to grow before SARS gets involved, yet it does not make staying outside VAT the right answer for every balance sheet.
A business at R1.8 million can now sit below the compulsory threshold and still face a very different commercial reality depending on who it sells to, what it buys, and how it prices. A consulting firm billing VAT-registered companies will read the new rule one way. A consumer-facing product business stocking shelves, paying freight, and buying equipment will read it another.
The new threshold changes the timing, not the decision
The old R1 million compulsory threshold pushed many firms into VAT earlier than planned. The new R2.3 million line gives them a longer runway.
For founders and operators, that extra headroom is useful. It delays the compliance overhead that comes with VAT returns, records, reconciliations, and the risk of getting the numbers wrong. It also gives a business more room to build turnover before it has to rethink pricing and cash flow.
VAT is not a penalty. It is a tax mechanism. Once a business registers, it charges output VAT on sales and claims input VAT on qualifying purchases. This can help or hurt depending on the model.
A firm with thin costs and corporate clients may have little reason to fear registration. A firm with heavy stock, transport, or equipment spend can lose a real tax advantage by staying out.
A consulting firm at R1.8 million
Take a consulting business earning R1.8 million a year in taxable supplies. It serves VAT-registered corporates. Its direct costs are low, maybe software subscriptions, a laptop refresh, internet, some professional development, and office overheads.
Now look at the same turnover with and without VAT registration.
If the firm is registered, it invoices clients at R1.8 million plus 15 percent VAT. The VAT component is R270 000. The client pays R2.07 million, but the client can usually claim the VAT back if it is a proper input expense. The VAT is not really part of the commercial debate for the customer. The bigger issue is the service fee before VAT.
If the consultant is not registered, it can invoice R1.8 million flat. That sounds cleaner, and in a narrow price comparison it can look cheaper. But in B2B work, the customer often compares the net fee, not the tax wrapper. A registered competitor charging R1.8 million plus VAT is not expensive to a VAT-registered buyer in the way a consumer would experience it.
The cost side matters too. Suppose the consulting business spends R200 000 a year on VATable inputs. At 15 percent, input VAT would be about R30 000. Registered, the business collects R270 000 and offsets R30 000, leaving roughly R240 000 to pay SARS before other adjustments. Unregistered, it pays no output VAT, but it also gives up that input tax recovery. The bookkeeping is lighter, but the tax treatment is less efficient than many owners assume.
For this kind of business, VAT registration often fits the client base. The invoice looks normal in the market, the company can reclaim VAT on overheads, and the admin burden is often easier to justify than it is for a small consumer brand.
A consumer goods business at R1.8 million
Now take a product business selling direct to consumers and turning over the same R1.8 million. It buys stock, pays freight, and invests in equipment. Its VATable input costs are much higher than the consulting firm’s.
Assume it spends R900 000 on stock and logistics before VAT, plus R100 000 on equipment and related business expenses, all before tax. At 15 percent, the input VAT on those purchases could be around R150 000 if everything qualifies.
Registered, the business charges VAT on sales. Its output VAT on R1.8 million is still R270 000. After deducting the R150 000 input VAT, the net VAT payment is about R120 000.
Unregistered, the business does not charge VAT at the till or on the website. This can be a pricing advantage in a consumer market where a sticker price of R199 matters more than the tax treatment behind it. A business outside VAT can sometimes hold a sharper shelf price than a registered rival that has to add 15 percent at checkout.
The trade-off is brutal and easy to miss. Without registration, the business cannot claim back the VAT on stock, logistics, or equipment. Those costs become fully loaded. A supplier invoice for R115 000, VAT included, stays R115 000. Registered, the business can strip out the tax component and recover it through the VAT system.
The right answer is not “stay under the threshold for as long as possible”. It is “compare the margin after input tax, not just the headline selling price”.
The same turnover produces two different answers
Think about the comparison this way.
Consulting firm
- Annual taxable supplies: R1.8 million
- Customer type: VAT-registered corporates
- Input VAT exposure: relatively low
- Likely effect of registration: limited pricing pain, useful input claims, manageable commercial fit
- Risk of staying unregistered: weaker access to corporate buyers if they expect VAT invoices
Consumer product business
- Annual taxable supplies: R1.8 million
- Customer type: end consumers
- Input VAT exposure: high on stock, logistics, and equipment
- Likely effect of registration: weaker sticker-price flexibility, but stronger tax recovery
- Risk of staying unregistered: higher embedded cost base because input VAT cannot be reclaimed
A business owner looking only at turnover misses the point. The real question is whether VAT is a cost, a pass-through, or a competitive tool in that specific market.
Deregistration is possible, but not frictionless
Some businesses already registered below the new threshold may look at the updated rules and ask whether they should cancel their VAT registration. That is possible, but not automatic.
SARS has a process for cancellation, and the business will need to qualify. The paperwork is only part of the issue. Deregistration can affect business assets, inventory on hand, and existing contracts. If a firm has claimed input VAT on assets in the past, there can be clawback-style consequences when those assets leave the VAT system. Contract pricing can also become awkward if clients signed agreements that assume VAT is charged on top.
Casual advice does the most damage here. A firm that cancels VAT because the threshold moved may discover that the exit cost is higher than the annual compliance burden it wanted to escape.
Before changing status, run the numbers properly
A business should not treat registration or cancellation as a branding decision. It is a tax and pricing decision with cash flow consequences.
Before changing status, an owner should check:
- who the customers are, and whether they are VAT registered
- how much VATable input spend the business really has
- whether prices are set as VAT-exclusive or VAT-inclusive
- what happens to stock, equipment, and other assets on deregistration
- whether contracts allow prices to be reworked if VAT status changes
- whether the admin cost of compliance is lower than the tax recovered
The R2.3 million threshold gives smaller firms more space to grow. It does not give them a free answer. For a B2B service business, staying registered can still be the smarter commercial move even below the threshold. For a consumer product business, remaining outside the system can help on shelf price, until the lost input tax starts eating the margin.
A tax practitioner should look at the structure before any registration change is made. The wrong move can look clever for one quarter and expensive for the next four.
