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