What changed on 1 April 2026
On 25 February 2026, the Minister of Finance announced the most significant changes to South Africa’s small business tax landscape in 17 years. 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
- The Turnover Tax threshold increased from R1 million to R2.3 million
- The Turnover Tax tax-free threshold increased to R600,000
These changes affect every South African small business with annual turnover between R1 million and R2.3 million. If your business falls in this range, you have decisions to make about your tax registration status.
The three options
Option 1: Deregister from VAT
If your business was previously registered for VAT because its turnover exceeded R1 million, but your annual turnover is now below R2.3 million, you may apply to deregister for VAT.
When to consider this option:
- Your annual taxable supplies are below R2.3 million
- The administrative burden of VAT returns is disproportionate to your turnover
- Your customers are mostly end consumers (not businesses that claim input VAT)
- You want to reduce compliance costs
What deregistration means:
- You stop submitting VAT returns every two months
- You stop calculating output tax and input tax
- You stop collecting VAT from customers on your invoices
- You may need to adjust your pricing (removing 15% VAT from your prices)
- You must apply to SARS for cancellation of your VAT registration using the prescribed process
What to watch out for:
- If your turnover is approaching R2.3 million, you may need to re-register in the near future
- Some customers may prefer dealing with VAT-registered suppliers
- If you are in the construction industry or supply to government, VAT registration may be expected or required by contract
Option 2: Remain registered for VAT voluntarily
You may choose to remain VAT-registered even if your turnover falls below the compulsory threshold. This is called voluntary registration.
When to consider this option:
- Your customers are mostly businesses that claim input VAT
- You supply zero-rated goods or services
- You make significant input VAT claims on business purchases
- You want to maintain your VAT-registered status for commercial reasons
What voluntary registration means:
- You continue to submit VAT returns and account for output and input VAT
- You must still comply with all VAT administrative requirements
- Your turnover must exceed R120,000 per year to remain voluntarily registered
- If your turnover falls below R120,000, you will be required to deregister
Option 3: Register for Turnover Tax
Turnover Tax is a simplified tax system designed specifically for small businesses. It replaces Income Tax, Provisional Tax, Capital Gains Tax, and Dividends Tax with a single tax calculated on your annual turnover.
The Turnover Tax rates from 1 April 2026:
The maximum annual tax on R2.3 million turnover is R39,500.
Who qualifies:
- Sole proprietors
- Partnerships
- Close corporations
- Companies
- Co-operatives
- Annual turnover of R2.3 million or less
What Turnover Tax replaces:
- Income Tax on business profits
- Provisional Tax payments
- Capital Gains Tax on business asset disposals
- Dividends Tax
- VAT (unless you elect to remain in the VAT system)
How to register:
SARS has integrated Turnover Tax registration into the SARS Online Query System (SOQS) from November 2025. You can register online.
How to decide which option is right for your business
The right choice depends on your specific circumstances. Consider these factors:
Your customer base
If your customers are mostly other businesses that need to claim input VAT, remaining VAT-registered may be important for your commercial relationships. If your customers are mostly end consumers, the VAT registration is less relevant to them.
Your input costs
If you make significant input VAT claims on purchases, equipment, or services, deregistering from VAT means you lose those deductions. Calculate whether the input tax you currently claim exceeds the administrative cost of VAT compliance.
Your growth trajectory
If your turnover is approaching R2.3 million, deregistering from VAT now may be short-lived. You may need to re-register within a year or two as your business grows.
Your administrative capacity
VAT returns require two-monthly submissions, accurate record-keeping of output and input tax, and reconciliation of your VAT account. Turnover Tax requires an annual return based on your total turnover. For small businesses with limited accounting resources, the simplicity of Turnover Tax can be significant.
Your pricing
If you deregister from VAT, you need to adjust your pricing. Your prices currently include 15% VAT. After deregistration, you charge your customers without VAT. This may mean your prices stay the same (increasing your net income) or you reduce your prices (maintaining your competitive position). Either way, the change affects your pricing strategy.
What businesses between R1 million and R2.3 million should do now
If your business falls in the R1 million to R2.3 million turnover range, here are the practical steps:
Step 1: Confirm your current turnover
Look at your actual turnover for the past 12 months. Not your projected turnover, not your best month, but your actual annual taxable supplies over the past 12 months.
Step 2: Check your VAT registration status
If you are currently registered for VAT and your turnover is below R2.3 million, you have the option to deregister. If you are not registered for VAT and your turnover is below R2.3 million, you are not required to register.
Step 3: Calculate your Turnover Tax liability
Use the Turnover Tax rates table to calculate what your tax would be under Turnover Tax. Compare this to your current Income Tax liability.
Step 4: Consider the transition
If you are switching from Income Tax to Turnover Tax, or from VAT to no VAT, there are transition issues to consider. You may need to account for output tax on existing stock when you deregister from VAT.
Step 5: Get professional advice
The right choice depends on your specific business circumstances. An accountant or auditor can help you model the financial impact of each option.
The bottom line
The 2026 threshold changes give South African small businesses more flexibility in how they manage their tax obligations. Whether you deregister from VAT, remain registered voluntarily, or switch to Turnover Tax, the key is to make an informed decision based on your actual business circumstances.
The worst thing you can do is nothing. If your turnover has changed, your tax obligations may have changed with it. Review your position, understand your options, and act before your next filing deadline.
SC Audit is an IRBA-registered audit firm based in Bellville, Cape Town. SC Audit’s partners Niel Schoeman, Simone Coetzee, and Hennie Meyer support small businesses with tax planning, VAT compliance, Turnover Tax registration, and financial statement preparation. Contact SC Audit to discuss which option is right for your business.
Frequently Asked Questions
What is the new VAT registration threshold?
From 1 April 2026, the compulsory VAT registration threshold is R2.3 million in annual taxable supplies. The voluntary registration threshold is R120,000. If your annual turnover is below R2.3 million, you are not legally required to register for VAT.
Can I deregister from VAT if my turnover is below R2.3 million?
Yes. If you are currently registered for VAT and your annual taxable supplies fall below R2.3 million, you may apply to SARS for cancellation of your VAT registration. You must go through the prescribed deregistration process.
What is Turnover Tax?
Turnover Tax is a simplified tax system for small businesses with annual turnover of R2.3 million or less. It replaces Income Tax, Provisional Tax, Capital Gains Tax, and Dividends Tax with a single tax calculated on your annual turnover. The first R600,000 of turnover is tax-free.
Should I stay registered for VAT voluntarily?
If your customers are mostly businesses that claim input VAT, or if you make significant input VAT claims on purchases, remaining voluntarily registered may make sense. If your customers are mostly consumers and you do not claim significant input VAT, deregistration may reduce your compliance burden.
How do I register for Turnover Tax?
You can register for Turnover Tax through the SARS Online Query System (SOQS). The registration process has been digitalised since November 2025. You can also visit a SARS branch or use a tax practitioner to assist with registration.