Insights · 26 August 2026

Should you deregister for VAT?

The VAT registration threshold sat at R1 million for seventeen years. On 1 April 2026 it jumped to R2,3 million.

That one Budget line quietly changed the question for thousands of South African businesses. Registration used to be a fact of life: cross R1 million in turnover and you were in, ready or not. Now a business turning over R1,5 million or R2 million gets to choose. (The voluntary threshold moved too — R50 000 to R120 000.)

And when people get a choice they’ve never had before, they usually ask the wrong question first.

The wrong question

“Should we deregister?” feels like the question. It isn’t. The first question is: what does leaving cost?

Because leaving VAT isn’t free. On the day you stop being a vendor, the VAT Act treats it as if you sold your business assets — to yourself. The equipment, the furniture, the stock on the shelf, even certain invoices you claimed VAT on but haven’t paid yet. Output VAT falls due on all of it, in one go, on your final VAT return — the exit VAT.

The sum is short: 15/115 of the lesser of what each item cost you and what it would fetch today (section 8(2) read with section 10(5) of the VAT Act). The detail is where it bites. A machine that’s depreciated to nil on your books still counts at its second-hand value. Stock counts. And because the value the law uses already includes VAT, the charge is 15/115 of it — not 15% on top. Published guides get that wrong, and the error is 15% of real money.

How leaving actually works

The process trips people as often as the arithmetic does, so here it is in five lines.

You apply on a form called the VAT123e, with a letter explaining your circumstances. You pay nothing when you apply. SARS’s own form, printed in 2009 — the last time the threshold moved — still says R1 million on it; the law now says R2,3 million.

Then you wait, typically a few weeks. While you wait, you’re still a vendor. Keep charging VAT, keep filing returns, keep claiming input VAT. Stopping on the day you apply is the classic mistake, and it’s an expensive one.

SARS writes back with the date it all ends — your final tax period. You value your assets and stock the day before that date, declare the exit VAT on the final return, and pay it. If you’re leaving because your turnover is under the threshold, the Act gives you up to six months to settle it.

After that: stop charging VAT, take it off your invoices and your prices, and keep your records for five years. SARS won’t finalise any of this while returns or payments are outstanding, so get clean first.

Who your customers are decides most of this

Here’s the part that surprises owners: staying registered is often the better call — and it depends less on your turnover than on who pays you.

If your clients are VAT-registered businesses, your VAT costs them nothing. You charge 15%, they claim the same 15% back from SARS as input tax, and the net price between you is unchanged. For them, a registered supplier is completely neutral — often preferable, because they expect a proper tax invoice and some procurement policies quietly require one. Meanwhile you claim the VAT back on your own costs. For a business selling mainly to other businesses, staying registered usually wins even when the threshold says you could leave.

It’s when most of your customers are not registered — households, salary earners, small unregistered traders — that registration hurts. They can’t claim anything back, so your 15% is pure price to them: either you’re 15% more expensive than the unregistered competitor down the road, or your margin quietly absorbs the difference. Those are the businesses with the most to gain from leaving.

Two more reasons to stay, whoever you sell to: your own costs carry meaningful VAT you’re claiming back (equipment-heavy and stock-heavy businesses), or you’ll cross R2,3 million again soon — bouncing out and back in is worse than staying put.

Put a number on it first

We built a free calculator that works the whole thing out: the threshold test, the exit VAT asset by asset, a completed SARS form, and the process step by step. It runs entirely in your browser — nothing you type is sent to us or anyone else.

Put the number on the table. Then decide. And if you’d rather have the whole thing handled — the valuations, the application, the final return — book a call.

Brandon Iverach is a SAIPA professional accountant and the founder of Accounting Connect — accounting, advisory and AI implementation for South African businesses.