MODULE 5 · SMALL BUSINESS
Budget 2026 change, effective April 2026: The compulsory VAT registration threshold was raised from R1,000,000 to R2,300,000. The voluntary threshold was raised from R50,000 to R120,000. If your accountant or AI assistant cites R1,000,000 — that figure is no longer current.
VAT Position Calculator
COMING SOONYour VAT position is the difference between the output VAT you collect from customers (15% of taxable supplies) and the input VAT you pay on business purchases. Under the VAT Act 89 of 1991, compulsory registration applies once taxable supplies exceed R2,300,000 in any 12-month rolling period — as updated by Budget 2026. This tool calculates registration status, output exposure, net VAT payable or refundable, and the return filing period that applies.
R2,300,000
Compulsory threshold
Budget 2026 · was R1,000,000
R120,000
Voluntary minimum
Budget 2026 · was R50,000
15%
Standard VAT rate
s7 VAT Act 89/1991
0%
Zero rate
s11 — selected supplies
R30,000,000
Bi-monthly filing below
6 VAT201 returns per year
5 years
Records retention
Tax Administration Act s29
THE BUDGET 2026 THRESHOLD CHANGE
The most significant VAT change for small businesses in a decade — and what it means for you right now
From April 2026, a South African business is only legally required to register for VAT once its taxable supplies exceed R2,300,000 in any 12-month rolling period. Before Budget 2026, that threshold was R1,000,000. The change more than doubles the size of the group of businesses that can legally operate without being VAT vendors.
The voluntary registration threshold — the minimum turnover required even to apply for voluntary registration — was simultaneously raised from R50,000 to R120,000. A business with annual taxable supplies below R120,000 cannot register for VAT at all, even if it wants to.
Below R120,000
Cannot register
VAT registration is not available. If a business in this range charges VAT, it is committing an offence under Section 58 of the VAT Act.
R120,000 – R2,299,999
Voluntary — your choice
Registration is available but not compulsory. The decision to register should be based on your client base and your input VAT recovery opportunity. See the decision framework below.
R2,300,000 and above
Compulsory — no choice
Registration is legally required. You must apply to SARS within 21 days of the end of the month in which the threshold was crossed. Failure to register triggers Section 59 penalties and a retrospective output VAT assessment.
The change creates a particularly important decision for the estimated 80,000 to 100,000 South African businesses that were compulsorily registered under the old R1,000,000 threshold and now fall in the R1,000,000 to R2,300,000 band. These businesses are not automatically deregistered. They become voluntary vendors. Each must now evaluate whether continued VAT registration benefits their business — and that evaluation is not simple.
Staying registered keeps your B2B clients happy — they can continue claiming input tax on your invoices, making your pricing 15% more attractive to them on a net basis. But it also maintains the administrative burden of bi-monthly VAT201 returns, VAT invoice compliance on every purchase, and the risk of output VAT assessments if returns are filed incorrectly. Deregistering simplifies administration but may cost you clients whose own VAT positions depend on your registration status.
This tool calculates both sides of that equation — and the five worked scenarios below cover the most common situations a South African business in 2026 needs to navigate.
VAT Position Calculator
COMING SOONThe interactive calculator will accept your annual taxable turnover, current registration status, estimated annual input VAT, and whether you make zero-rated supplies — then return your registration requirement, output VAT exposure, net VAT position (payable or refundable), filing period, and a specific recommendation for businesses in the R1M–R2.3M voluntary band, including the financial impact of deregistering.
Be notified when this calculator launches → wandile@centurionai.co.za
THRESHOLD COMPARISON
Before vs After Budget 2026
Compulsory registration
R1,000,000
Before
R2,300,000
After
+R1,300,000
Voluntary registration (min)
R50,000
Before
R120,000
After
+R70,000
Source: SARS Budget 2026/27 · Effective April 2026
OUTPUT VAT QUICK CALC
Output VAT = Annual taxable turnover × 15%
R500,000 turnover
R75,000 output VAT
R1,000,000 turnover
R150,000 output VAT
R1,500,000 turnover
R225,000 output VAT
R2,000,000 turnover
R300,000 output VAT
R2,300,000 turnover
R345,000 output VAT
R5,000,000 turnover
R750,000 output VAT
R10,000,000 turnover
R1,500,000 output VAT
Standard rate only. Zero-rated supplies attract 0% output VAT.
VAT FILING PERIODS
Below R30,000,000
Bi-monthly · 6 VAT201s per year
Category A/B
Above R30,000,000
Monthly · 12 VAT201s per year
Category C/D
Seasonal / agricultural
Annual · 1 VAT201 per year
Category E (by application)
Returns due: 25 days after period end (manual) · 30 days (eFiling)
HOW THE CALCULATION WORKS
From turnover to net VAT payable — the four-step framework
Your VAT position is not just about whether you are registered. It is about the cash you pay to SARS or recover from SARS every two months. Understanding each step lets you manage your VAT exposure proactively rather than reacting to assessment notices.
Determine registration status
Apply the 12-month rolling test to your taxable turnover. Above R2,300,000 — compulsory. R120,000 to R2,299,999 — voluntary decision. Below R120,000 — cannot register. Both a retrospective test (what happened in any past 12-month window) and a prospective test (what you expect in the next 12 months) can trigger compulsory registration.
VAT Act s23Calculate output VAT
Output VAT is 15% of the value of all taxable supplies made during the tax period — the VAT you charge customers and collect on SARS's behalf. Zero-rated supplies (Section 11) are included in your taxable supplies total but attract 0% output VAT. Exempt supplies (Section 12) are excluded entirely and attract no VAT in either direction.
VAT Act s7 — 15% standard rateDeduct input VAT
Input VAT is 15% of VAT paid on business purchases — claimable as a deduction from output VAT, provided you hold a valid Section 20 tax invoice for each item. Input VAT on private use, entertainment, and motor vehicles (subject to restrictions) is not deductible. The remaining difference is your net VAT position.
VAT Act s16(2) + s17Determine payable or refundable
If output VAT exceeds input VAT, the difference is payable to SARS on your VAT201 return. If input VAT exceeds output VAT — a refund position — SARS owes you the difference, which must be claimed on the VAT201. Refund positions are common in export businesses, zero-rated suppliers, and businesses in a high-capital-expenditure phase.
VAT Act s44 — refundsFIVE SCENARIOS — YOUR VAT POSITION IN PRACTICE
Where does your business sit? Find your scenario.
These five scenarios span the full spectrum of VAT positions a South African small business faces in 2026. Each shows the MCP tool output with exact figures and a specific recommendation for that business type.
R1.4M turnover — should I register voluntarily?
Annual taxable turnover: R1,400,000 · Not currently registered · B2B clients all VAT registered
A graphic design studio with R1,400,000 in annual turnover. All clients are registered VAT vendors — marketing agencies and corporate communications departments. The studio is not currently registered and has never been required to register. The question is whether voluntary registration makes commercial sense.
Registering means charging clients 15% VAT — R210,000 in output VAT per year on R1,400,000 turnover. But because all clients are VAT vendors, they simply claim that R210,000 back as input tax. The studio's effective price to its clients is unchanged. In exchange, the studio can claim back the input VAT on its own business purchases — studio equipment, software subscriptions, professional services — at approximately R45,000 per year. That R45,000 is a direct cash benefit.
Recommendation: register voluntarily
When all clients are VAT vendors, voluntary registration costs nothing commercially and returns the input VAT on purchases — R45,000 per year in this example. The administrative cost of bi-monthly VAT201 returns is typically R3,000–R6,000 per year in accounting fees. The net benefit is positive.
R1.8M turnover — already registered, B2C business, should I deregister?
Annual taxable turnover: R1,800,000 · Currently registered · B2C — all customers are private individuals
A beauty salon chain registered under the old R1,000,000 threshold. Annual turnover is R1,800,000 — now below the new R2,300,000 compulsory threshold. All clients are private individuals who cannot claim input VAT. The salon charges 15% VAT on every service, collects it, and pays it to SARS every two months. The question: should it deregister?
Deregistering means the salon can either reduce its prices by 15% and stay competitive, or retain the existing price points and increase its effective margin by 15% on every service. Since none of the clients can claim input VAT, there is no B2B argument for staying registered. The salon is collecting and remitting R270,000 in output VAT per year and recovering approximately R60,000 in input VAT — a net outflow to SARS of R210,000 per year that could be retained if deregistered.
Recommendation: strong case for deregistration
A pure B2C business in the voluntary band with no zero-rated supplies has limited reason to stay registered. The R210,000 net VAT outflow is a real cash cost with no commercial benefit to clients who cannot claim it back. Deregistration application submitted to SARS — the business must continue filing until SARS confirms deregistration.
R2.8M turnover — must register, not yet done so
Annual taxable turnover: R2,800,000 · Not registered · Crossed R2.3M threshold 3 months ago
A wholesale food distributor whose turnover crossed R2,300,000 three months ago. The owner was not aware the threshold had changed from R1,000,000 to R2,300,000. Registration should have been applied for within 21 days of the end of the month in which the threshold was crossed. It has not been. The business is trading without VAT registration while legally required to be registered.
The output VAT on R2,800,000 turnover is R420,000 per year, or R35,000 per month. For the three months of unregistered trading, SARS can assess R105,000 in output VAT liability — on top of penalties under Section 59 of the Tax Administration Act and interest from the dates each bi-monthly return should have been filed.
Action required immediately
Apply for VAT registration on SARS eFiling immediately. Voluntary disclosure under the Tax Administration Act is available for the period of non-registration — it reduces penalties in exchange for full disclosure. Do not wait. Every additional month of unregistered trading increases the exposure.
R800,000 turnover — zero-rated food exports, voluntary registration
Annual taxable turnover: R800,000 · Not registered · All supplies are zero-rated exports
A small food producer exporting dried fruit to European retailers. Annual turnover is R800,000 — well below the R2,300,000 compulsory threshold. All supplies are exports classified as zero-rated under Section 11 of the VAT Act. The business has R120,000 in annual purchases of packaging, cold storage, and logistics — each attracting 15% input VAT of approximately R18,000.
Because the business makes zero-rated supplies, it charges 0% output VAT on all sales. If it registers voluntarily, it can claim back the R18,000 input VAT on its purchases from SARS every two months — without paying any output VAT. The result is a permanent refund position of R18,000 per year — SARS pays the business, not the other way around.
Recommendation: register voluntarily — immediately
Zero-rated suppliers have the strongest financial incentive to register voluntarily of any business type. The combination of zero output VAT and full input VAT recovery creates a permanent refund position. The minimum turnover to qualify for voluntary registration is R120,000 per year — easily met here.
R7M turnover — compulsory vendor, planning quarterly cash flow
Annual taxable turnover: R7,000,000 · Registered · Input VAT: R320,000/year
A construction materials supplier with R7,000,000 in annual taxable turnover. Compulsorily registered. Bi-monthly VAT returns. The business has significant input VAT from raw material purchases, vehicles, and equipment. The owner wants to understand the exact VAT cash flow commitment every two months so treasury can plan payments.
Annual output VAT is R1,050,000 (R7,000,000 × 15%). Annual input VAT is R320,000. The net VAT payable to SARS per year is R730,000 — or approximately R121,667 per bi-monthly return. This is a predictable cash outflow that should be reserved from the business's operating account throughout the two-month period, not funded from a lump sum on filing day.
Cash flow management for VAT vendors
R121,667 per return period means approximately R20,278 per week needs to be set aside. The most common cause of VAT payment default in small businesses is not insolvency — it is poor cash flow planning. Vendors who treat VAT as money they have earned, rather than money they are holding in trust for SARS, routinely face cash crises on return day.
THE VOLUNTARY REGISTRATION DECISION
If your turnover is between R120,000 and R2,300,000 — the four questions that determine whether to register
Voluntary registration is a commercial decision, not just a tax one. The following four questions cover the analysis every business in the voluntary band needs to complete — before talking to an accountant or applying to SARS.
1. Are your clients VAT-registered vendors?
If YES:
If yes, registering makes you more attractive — clients claim back the 15% VAT you charge, so your effective price to them is unchanged. Not registering means you cannot recover input VAT on your own purchases.
If NO:
If no (all clients are private individuals or non-VAT entities), registering adds a 15% cost to your prices that clients cannot recover. You must decide whether to absorb it or pass it on. Deregistration is usually better for pure B2C businesses below R2.3M.
2. Do you make zero-rated supplies?
If YES:
If yes, register immediately. Zero-rated suppliers charge 0% output VAT and recover all input VAT — creating a permanent refund position. There is no financial downside to registration for a zero-rated supplier.
If NO:
If no, the analysis depends on your client base (Question 1) and your input VAT recovery opportunity (Question 3).
3. How much input VAT do you pay on purchases?
If YES:
High input VAT (business with significant equipment, materials, or professional service costs): voluntary registration allows you to recover that input VAT. Calculate the annual input VAT recovery and weigh it against the administrative cost of bi-monthly returns (typically R3,000–R8,000 per year in fees).
If NO:
Low input VAT (service business with minimal purchases): the recovery benefit is smaller. The decision hinges more heavily on Question 1 — whether client relationships drive the commercial case.
4. Are you planning significant capital expenditure?
If YES:
If you are buying plant, equipment, vehicles, or making leasehold improvements in the next 12 months, registering before those purchases allows you to claim the input VAT immediately. On a R500,000 equipment purchase, that is R75,000 claimable from SARS on your next return.
If NO:
If no major capex is planned, the input VAT recovery benefit is lower and the analysis returns to Questions 1 and 3.
WHAT BUSINESSES GET WRONG
Five VAT registration mistakes that cost small businesses money
Not knowing the R2,300,000 threshold has changed
As of April 2026, the compulsory VAT registration threshold is R2,300,000 — not the R1,000,000 figure that many advisors, accounting software products, and AI assistants still cite. A business that crossed R1,000,000 and registered in 2024 under the old rule is now a voluntary vendor. A business at R1,500,000 that never registered because it was 'below the VAT threshold' needs to re-evaluate.
VAT Act s23 · Budget 2026/27 · effective April 2026Missing the retrospective 12-month rolling test
The registration test is not based on the calendar year or the financial year — it looks at any consecutive 12-month period. A business can have low turnover in January to June and high turnover in July to December, never crossing R2,300,000 in either half, yet still cross the threshold on a rolling July-to-June basis. The rolling window catches businesses that focus only on their annual totals.
VAT Act s23(1)(a) — retrospective testIgnoring the prospective test for signed contracts
If a business has signed contracts or purchase orders that commit future revenue which will exceed R2,300,000 in the next 12 months, the prospective registration test is triggered — even if past revenue was below the threshold. A construction company that signs a R3,000,000 building contract in March must register prospectively, without waiting to actually earn that revenue.
VAT Act s23(1)(b) — prospective testTreating VAT collected as operating income
Output VAT collected from clients is not business revenue — it is held in trust for SARS. A business with R2,300,000 in taxable turnover collects R345,000 in VAT that belongs to SARS. When this money is spent on operating expenses before the VAT201 is due, the business faces a funding crisis on filing day. VAT collected should be held in a separate account from the first day of the filing period.
VAT Act s28 — VAT201 payment obligationNot claiming input VAT on capital assets before deregistering
A business that deregisters from VAT must account for all assets held at deregistration as if they were sold at market value on the date of deregistration — this can create an output VAT liability on assets the business is not actually selling. Before applying to deregister, identify all assets on which input VAT was claimed and consult a tax practitioner about the deregistration output VAT exposure under Section 8(2) of the VAT Act.
VAT Act s8(2) — deregistration deemed supplyFREQUENTLY ASKED QUESTIONS
VAT registration — questions South African business owners ask
What is the VAT registration threshold in South Africa in 2026?
The compulsory VAT registration threshold in South Africa was raised from R1,000,000 to R2,300,000 in Budget 2026, effective April 2026. A business must register for VAT if its taxable supplies in any 12-month rolling period have exceeded or are reasonably expected to exceed R2,300,000. The voluntary registration threshold was simultaneously raised from R50,000 to R120,000. Businesses with taxable supplies below R120,000 cannot register for VAT at all.
Do I need to deregister for VAT if my turnover is between R1 million and R2.3 million?
No — you are not automatically deregistered. Businesses that were compulsorily registered under the old R1,000,000 threshold and now fall in the R1,000,000 to R2,300,000 band become voluntary vendors. You may choose to remain registered or apply to SARS to deregister. Whether to deregister depends on whether your clients are VAT-registered vendors who need to claim input tax on your invoices, and whether you have significant input VAT to recover on your own purchases.
How is the 12-month VAT registration test calculated?
The 12-month rolling test looks back at any consecutive 12-month period — not the calendar year or financial year. If your taxable supplies in any 12-month window from any starting month have exceeded R2,300,000, compulsory registration is triggered. The test also looks forward: if you have a reasonable expectation that supplies will exceed R2,300,000 in the next 12 months, you must register prospectively. Both the retrospective and prospective tests can trigger registration.
What is the difference between output VAT and input VAT?
Output VAT is the 15% VAT you charge your customers on taxable supplies — collected on SARS's behalf and payable on your VAT201 return. Input VAT is the 15% VAT you pay on business purchases — claimable as a deduction from your output VAT liability, provided you hold a valid Section 20 tax invoice. Your net VAT position is output VAT minus input VAT. If input exceeds output, SARS owes you a refund.
Should I register for VAT voluntarily in South Africa?
Voluntary VAT registration is beneficial when your clients are themselves VAT-registered vendors — because being registered makes your services 15% cheaper for them on a net basis. It is also beneficial when you make zero-rated supplies, because you charge no output VAT but can still claim all input VAT on your purchases, creating a permanent VAT refund position. Voluntary registration creates a bi-monthly VAT201 filing obligation — it should only be elected when the commercial benefit is clear.
How often must a registered VAT vendor submit a VAT return?
Most South African VAT vendors with annual taxable supplies below R30,000,000 submit bi-monthly VAT201 returns — six returns per year, each covering a two-month tax period. Vendors above R30,000,000 submit monthly. A small category of vendors (Category E) may apply for annual return status. VAT returns are due within 25 days of the end of the tax period for manual submissions and within 30 days for eFiling.
What happens if I fail to register for VAT when I should have?
Failure to register once the compulsory threshold is crossed is a statutory offence. SARS can assess the business for all output VAT that should have been charged and paid over from the date registration should have occurred — regardless of whether the business actually collected 15% VAT from customers. Interest accrues from the due date of each missed return. Section 59 penalties under the Tax Administration Act also apply. Voluntary disclosure under the TAA is available and reduces penalties in exchange for full disclosure.
Can a zero-rated supplier benefit from VAT registration?
Yes — zero-rated suppliers have the strongest incentive to register voluntarily. A zero-rated supply attracts 0% output VAT, meaning the supplier charges nothing to the customer. But as a registered VAT vendor, the supplier can still claim input VAT on all business purchases at 15%. The result is a permanent VAT refund position — SARS effectively funds part of the business's input costs. The minimum turnover for voluntary registration is R120,000 per year.
RELATED TOOLS
VAT Invoice Checker
COMING SOONOnce registered, every input tax claim must be backed by a valid Section 20 invoice. Check all ten required fields before filing your VAT201.
VAT Act 89/1991 — s20
VAT Calculator
Add or extract 15% VAT from any transaction amount. Includes invoice tier determination. Live now.
VAT Act 89/1991 — s7 standard rate
Try calculator →SBC Tax Calculator
COMING SOONIf you are VAT registered, you may also qualify for SBC progressive tax rates. Calculate your tax saving under Section 12E.
Income Tax Act s12E · Budget 2026/27
Wandile Lokwe
FAIS Key Individual · CenturionAI (Pty) Ltd · Centurion, Gauteng
20 years in South African financial services. All VAT threshold figures on this page are sourced from the SARS Budget 2026/27 Tax Pocket Guide, the VAT Act 89 of 1991, and SARS official guidance. The R2,300,000 compulsory threshold and R120,000 voluntary threshold are effective from April 2026 — confirmed from the Budget 2026 announcement and SARS implementation guidance. Any source citing R1,000,000 as the current compulsory threshold is using pre-Budget 2026 figures.
wandile@centurionai.co.za · 081 344 8722
VAT position is calculated using the Budget 2026/27 registration thresholds under the VAT Act 89 of 1991. The compulsory registration threshold was raised from R1,000,000 to R2,300,000 in Budget 2026, effective April 2026. If your actual taxable turnover approaches the compulsory threshold at any point in a 12-month rolling period, registration is required from that date — not from the end of your financial year. Verify your current VAT registration status at sars.gov.za. Consult a registered tax practitioner before applying to register or deregister — the deregistration process under Section 8(2) of the VAT Act can trigger a deemed supply on assets held at deregistration date.