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- Link: https://dearsouthafrica.co.za/2026/02/27/the-r2-3-million-victory-what-the-new-vat-threshold-means-for-your-small-business/
- Published: 2026-02-27T19:57:38+02:00
- Author: dearSA

![](https://cdn.dearsouthafrica.co.za/wp-content/uploads/2026/02/27195541/newVAT-
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## THE R2.3 MILLION VICTORY: WHAT THE NEW VAT THRESHOLD MEANS FOR YOUR SMALL BUSINESS

In the 2026 Budget Speech, Finance Minister Enoch Godongwana announced a long-overdue
correction: the compulsory VAT registration threshold will increase from R1 million
to R2.3 million, effective 1 April 2026. For those of us who have been championing
the “missing middle” of South African business, this is a watershed moment.

Since 2009, the R1 million ceiling has acted as a “tax on growth,” pulling micro-
enterprises into a complex administrative net long before they reached a sustainable
scale. By adjusting this threshold to align with nearly two decades of inflation,
the Treasury has finally acknowledged that a R1 million business in 2026 is significantly
smaller and more vulnerable than it was in 2009.

Why This Matters: Beyond the Numbers

For the average SMME, VAT registration isn’t just about the 15% tax; it’s about 
the compliance cost.

• Cash Flow: Businesses often pay VAT to SARS before their clients have actually
paid the invoice.

• Complexity: Monthly or bi-monthly filings require specialised accounting software
or external tax practitioners, eating into razor-thin margins.

• Competitive Edge: Small firms serving the public can now keep their prices lower
without the mandatory 15% markup, allowing them to compete more effectively with
larger entities.

The “Interim Trap”: What if you exceed R1 million today?

This is the most pressing question for business owners right now. If your turnover
hit R1.1 million this month, do you register now or wait for April?

Because the current law (R1 million) remains in force until 31 March 2026, the official
position is that you are still legally required to register within 21 days of exceeding
the threshold. However, we are in a unique “grey zone.”

Our Suggestions for Businesses in the Middle:

1. Don’t Just “Take a Chance”: SARS’s AI-enabled “Project AmaBillions” is more efficient
than ever at spotting non-compliance. Ignoring a current legal obligation can lead
to backdated penalties and interest that could wipe out your business.

2. Submit, then Deregister: If you hit the R1 million mark before April, the safest
legal route is to apply for registration. Once the new law kicks in on 1 April, 
and if your turnover is safely below R2.3 million, you can apply for voluntary deregistration.

3. Wait for the “Clarification Note”: We expect SARS to issue a Binding General 
Ruling or a Practice Note shortly. It is highly likely they will offer a “grace 
period” or a simplified transition for those caught in this five-week window to 
avoid the administrative nightmare of registering a business only to deregister 
it 30 days later.

4. Consult Your Accountant on the “Payments Basis”: If you must register now, ensure
you apply to be on the Payments Basis (if you qualify). This ensures you only pay
VAT to SARS once you’ve actually received cash from your customers, easing the liquidity
crunch.

Will SARS “Write it Off”?

Historically, SARS does not “write off” obligations. However, the Commissioner has
the power to remit penalties and interest if a taxpayer can show they acted in good
faith during a period of legislative transition.

The Bottom Line

This win proves that public participation works. We provided the math, we highlighted
the struggle, and the Treasury listened. This R2.3 million threshold is a lifeline
for the backbone of our economy—the small business owner.

As we wait for the final gazetted regulations, keep your records meticulous. The
burden is lifting, but we must cross the finish line legally.

Rob Hutchinson, [DearSouthAfrica.co.za](http://dearsouthafrica.co.za/?fbclid=IwZXh0bgNhZW0CMTAAYnJpZBExbXhFRFRBMTBGYWF1Y2JTMnNydGMGYXBwX2lkEDIyMjAzOTE3ODgyMDA4OTIAAR6cCqwKl2Hi-OHgbY70VpbeajJmKgcQAoFEdA4FdKq3WL6WENPuX5aE-ltXhg_aem_pvpRbFaTlFMBCNgqKLpNcQ)