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March brings more than just a season change to South Africa. It is also the time when businesses reset their financial strategies for the new financial year. Budgets are reviewed, forecasts are adjusted, and growth plans are mapped out.
This year's 2026 Budget Speech by the National Treasury includes an exciting Value Added Tax (VAT) update that could materially affect small and medium-sized enterprises.
The big reveal?
The compulsory VAT registration threshold has increased from R1 million to R2.3 million.
This change significantly alters the growth path for small businesses by delaying VAT compliance. It impacts pricing, cash flow, administrative complexity, market positioning, and financial planning.
Previously, a business was required to register for VAT once its taxable supplies exceeded R1 million in any consecutive 12-month period. From the new financial year, compulsory registration only applies once turnover exceeds R2.3 million.
If your taxable turnover crosses that limit, you must register with the South African Revenue Service and charge VAT at the standard rate. Below that level, VAT registration is voluntary.
For many small businesses, this creates meaningful breathing room during the growth phase.
For many SMEs, crossing the R1 million mark previously triggered a major operational shift. VAT registration affects price models, cash flow management, bookkeeping systems, and client relationships. It may also disturb competitiveness, particularly where customers are price-sensitive or are not VAT-registered vendors themselves.
The higher threshold of R2.3 million includes many benefits:
• Allows smaller businesses to mature without compliance burdens
• Lower early-stage administrative costs
• Improved working capital flexibility
• Greater pricing freedom in competitive markets
For businesses with turnover between R1 million and R2.3 million, this is a considerable development.
Although the higher threshold provides relief, voluntary VAT registration can still be profitable in certain scenarios, for example, if:
• Your clients are mainly corporate VAT-registered businesses that can claim input VAT, and not doing so may create pricing friction
• You incur significant VAT on expenses and want to recover it to improve margins
• Being VAT-registered strengthens your credibility or market status
This decision should align with your growth strategy, client base, and cost structure.
The start of the financial year is the ideal time to review projected turnover, pricing, and overall tax efficiency with a trusted accountant, tax specialist, or financial advisor.
Many business owners now wonder if they can cancel VAT registration.
If your turnover is below the new R2.3 million threshold, you may apply to deregister. Take note: deregistration is not automatic. You must formally apply to SARS and continue charging VAT until deregistration is approved.
It is also vital to understand that deregistration can trigger a final VAT adjustment, which may result in a once-off liability. In certain cases, VAT must be accounted for on:
• Trading stock
• Fixed assets
• Certain capital goods
Before cancelling your VAT number, consider your projected growth, client profile, administrative costs, and the likelihood of needing to re-register in the near future.
Deregistering only to cross the threshold shortly afterwards creates unnecessary disruption and client confusion.
VAT registration is based on taxable supplies in any consecutive 12-month period, not only your financial year total. Businesses must therefore monitor rolling turnover throughout the year.
If revenue exceeds R2.3 million within any 12-month window, VAT registration becomes compulsory. Late registration can cause penalties and interest.
Precise financial reporting and preemptive forecasting are essential.
As you plan for the new financial year, now is the time to assess your turnover forecasts accurately and ensure SARS compliance.
Also, the increase in the VAT registration threshold announced in the 2026 Budget creates new opportunities for small businesses in South Africa – perhaps this applies to you. Yet this can trigger uncertainty for business owners, who might already feel overwhelmed by tax planning. To register or not to register? To remain registered or to deregister? When is the timing right? How will it affect the business?
At Huysamen Westraad, we understand these concerns, and we believe the right VAT decision should be part of a wider, individualised financial strategy. We are ready to assist you with practical, expert advice for business optimisation in 2026 and beyond. Let’s talk.
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