You must register for VAT in South Africa once the total value of your taxable supplies exceeds R2.3 million in any consecutive 12-month period. You may register voluntarily once taxable supplies exceed R120,000. Both thresholds took effect on 1 April 2026, replacing the R1 million and R50,000 thresholds that had stood since 2009.
That single change moved tens of thousands of South African businesses out of compulsory VAT — and it caught most of them by surprise. This guide explains exactly how the threshold test works, why the "12-month period" is not your financial year, when the clock actually starts, and what SARS does to businesses that register late.
TL;DR
Compulsory registration: taxable supplies exceeding R2.3 million in any consecutive 12 months.
Voluntary registration: taxable supplies exceeding R120,000 in the past 12 months.
Both thresholds are effective 1 April 2026 (Budget 2026, announced 25 February 2026).
The test is a rolling 12 months, not your financial year. Check it monthly.
A useful monthly trigger: sustained taxable supplies above roughly R191,667 a month put you on track to breach R2.3 million.
You must apply within 21 business days of becoming liable.
If you were already over the old R1 million threshold and never registered, SARS can backdate your registration — with penalties and interest.
The two thresholds, side by side
South Africa has two thresholds, and they do different jobs. One forces you into the VAT system. The other lets you in if you want to be there.
| Compulsory registration | Voluntary registration | |
|---|---|---|
| Threshold (from 1 Apr 2026) | Taxable supplies exceed R2.3 million in any consecutive 12-month period | Taxable supplies exceed R120,000 in the past 12 months |
| Previous threshold | R1 million | R50,000 |
| Is it a choice? | No — it is a legal obligation | Yes — you apply if you want to |
| Deadline to apply | Within 21 business days of becoming liable | No deadline; apply when you choose |
| What happens if you ignore it | SARS can backdate your registration and charge penalties and interest | Nothing — you simply stay outside the VAT system |
| Governing provision | Section 23(1) of the VAT Act | Section 23(3) of the VAT Act |
The VAT rate itself did not change. It remains 15%. (The 0.5 percentage point increase announced in the 2025 Budget was reversed before it took effect, and the VAT Act was amended to keep the rate at 15% from 1 May 2025.)
How the 12-month test actually works
This is where almost every business gets it wrong, so it is worth being precise.
It is a rolling period, not your financial year
The VAT Act refers to "any consecutive period of 12 months." That is not 1 March to 28 February. It is not 1 January to 31 December. It is any rolling twelve months — which means there are twelve overlapping test periods running at any given moment.
A business with a February year-end could cross R2.3 million over the period July 2026 to June 2027 and be liable to register in June 2027, even though neither its 2026/27 nor its 2027/28 financial year, viewed alone, exceeds R2.3 million.
Practical consequence: you cannot check this once a year at year-end. You have to check it every month, looking back over the previous twelve.
What counts towards the threshold
The test is on taxable supplies, not on turnover, not on profit, and not on everything that lands in your bank account.
Taxable supplies include:
Standard-rated supplies (the ordinary 15% sales that make up most SME revenue)
Zero-rated supplies — these still count towards the threshold even though the VAT charged is 0%. Exports, certain basic foodstuffs and certain services to non-residents are the common examples.
Taxable supplies exclude:
Exempt supplies — residential rental, most financial services, public transport by road or rail, educational services provided by qualifying institutions
Capital asset disposals — selling a delivery vehicle or a building is generally excluded from the threshold calculation, because a one-off sale of a capital asset is not the ordinary course of your enterprise
Amounts that are not consideration for a supply at all — loans received, capital injected by shareholders, insurance payouts for a capital loss, and pure donations
That distinction between zero-rated and exempt trips people up constantly. A business exporting R2.5 million of goods a year is liable to register even though it will charge 0% VAT on every sale — and once registered, it will be in a permanent refund position, which is usually a good thing for cash flow. A landlord earning R2.5 million from residential lettings is not liable to register at all, because residential rental is exempt.
The forward-looking test: only written contracts count
There is a second route into compulsory registration. If, at any time, there are reasonable grounds for believing your taxable supplies will exceed R2.3 million in the following 12 months, you become liable.
The important restriction: since 2014, this forward-looking test only applies where the expectation is based on a written contract. An optimistic budget does not trigger it. A verbal commitment from a client does not trigger it. A signed written contract that will deliver more than R2.3 million of taxable supplies over the next twelve months does.
This matters most for businesses that win a single large contract — construction, professional services, equipment supply — and go from R800,000 a year to R4 million overnight. Sign that contract and you are liable immediately, before you have invoiced a cent.
A monthly rule of thumb
SARS itself offers a useful shortcut in its Budget 2026 FAQs: monthly taxable supplies above roughly R191,667 put you on track to breach R2.3 million over twelve months (R2,300,000 ÷ 12 = R191,666.67).
Treat that number as a warning light, not a rule. Seasonal businesses regularly exceed it in December and fall well below it in February, and their rolling 12-month total never comes close.
Three worked examples
Example 1: The consultancy that stayed out
Nomsa runs a marketing consultancy. Over the twelve months to 30 June 2026 she invoiced R1.85 million, all standard-rated services to South African clients.
Taxable supplies: R1,850,000
Compulsory threshold: R2,300,000
Result: not liable to register.
Under the old R1 million threshold, Nomsa would have been compulsorily registered — and in fact she was. She now has a decision to make about whether to deregister, which is a separate question with real costs attached.
Example 2: The exporter who must register
Thabo manufactures leather goods. Over the twelve months to 31 May 2026:
Local sales (standard-rated): R900,000
Export sales (zero-rated): R1,600,000
Total taxable supplies: R2,500,000
Thabo is liable to register, despite the fact that R1.6 million of that carries 0% VAT. Once registered, he charges 15% on his local sales, 0% on his exports, and claims input VAT on all his leather, machinery and overheads. His input claims will likely exceed his output tax most months, putting him in a refund position.
Example 3: The landlord who is not in the system
Priya owns a block of flats generating R2.6 million a year in residential rental, plus R180,000 from a small ground-floor shop let commercially.
Residential rental: exempt — excluded from the test
Commercial rental: taxable — R180,000
Total taxable supplies: R180,000
Priya is nowhere near compulsory registration. She is above R120,000, so she could register voluntarily in respect of the commercial letting — but she would then have to apportion input VAT across a building used mostly for exempt purposes, which is administratively painful for very little benefit.
When exactly do you have to register?
Once you become liable, you must apply for registration within 21 business days of the date you became liable. Business days exclude weekends and public holidays, and the December 16 to January 15 period is excluded from business-day counts in tax administration.
Note the wording carefully: the deadline is on applying, not on being approved. SARS registration turnaround varies, and the responsibility to submit on time sits with you.
What if SARS takes weeks to issue the number?
This is the single most common practical problem. You are legally liable from the date you crossed the threshold, but you cannot issue a valid tax invoice without a VAT number.
The workable approach is to invoice the VAT-inclusive amount without describing it as VAT or issuing a tax invoice, and then reissue proper tax invoices once your number is allocated and your effective date is confirmed. Tell your customers up front that the reissued invoice is coming — B2B customers need it to claim their own input VAT, and they will be far more accommodating if warned.
SARS has tightened the registration process
From 8 December 2025, SARS changed how VAT registration applications are handled:
Rejection notices now state the specific reason for rejection rather than a generic message.
Where documents are missing, incomplete, incorrect or outdated, SARS may phone you and will issue a formal letter listing what is needed.
You then have five business days from the date of that letter to upload the documents. Miss it, and the system automatically rejects the application.
Five business days is not long. If you are applying, watch the eFiling correspondence inbox and the phone number on your SARS profile.
What happens if you register late
This is the part worth reading twice, because the consequences are asymmetric and expensive.
If you crossed the threshold and did not register, SARS may backdate your registration to the date you became liable. The effect is that you are treated as having been a VAT vendor for that whole period — which means:
You owe the output VAT on everything you sold in that period. Not 15% on top of what you charged — 15/115ths of what you charged, because your prices are deemed VAT-inclusive. On R3 million of sales, that is roughly R391,000 of output tax you never collected from your customers.
You can claim input VAT for the same period, if you have valid tax invoices. This is the saving grace, and it is why keeping supplier invoices matters even before you register.
Penalties and interest apply. SARS charges interest on late or underpaid tax at 10.25% per annum (from 2 March 2026), plus late payment penalties.
SARS made this explicit in its Budget 2026 FAQs: businesses that previously exceeded the old R1 million compulsory threshold but failed to register may have registration backdated, with penalties and interest.
The way out: the Voluntary Disclosure Programme
If you know you should have registered and did not, the Voluntary Disclosure Programme (VDP) is the mechanism designed for exactly this. Applied for correctly and before SARS opens an audit, inquiry or investigation, the VDP gives 100% relief from understatement penalties where there was no intention to evade. Interest remains payable.
The timing rule is absolute. Once SARS issues an audit notice for the period, VDP is off the table. If you are exposed, the window is now, not after the letter arrives.
Does the higher threshold apply if you were already registered?
No — and this is the most misunderstood consequence of the change.
The new R2.3 million threshold does not automatically deregister anyone. If you are a registered vendor with turnover of, say, R1.6 million, you remain a vendor with every obligation that entails until you apply to cancel and SARS confirms a final tax period.
SARS confirmed this directly: a vendor whose taxable supplies are between R120,000 and R2.3 million will not be cancelled automatically. You may choose to apply for cancellation, but nothing happens by itself.
There is one exception. Where a voluntarily registered vendor's taxable supplies in the preceding 12 months are below R120,000, SARS will notify you of its intention to cancel your registration. You can accept that, or object using an ADR1 Notice of Objection within 80 business days.
Deregistering is not free — there is an exit VAT charge on assets and stock on hand. We cover that calculation in detail in our guide on whether to deregister for VAT now that the threshold is R2.3 million.
If you are under the compulsory threshold but wondering whether to be in the system at all, see is voluntary VAT registration worth it at R120,000 turnover. For a summary of everything that moved in Budget 2026, see what actually changed on 1 April 2026.
Exceptions to be aware of
The Budget 2026 FAQ notes that "certain exceptions apply" to the thresholds. The main ones:
Foreign suppliers of electronic services. Non-resident businesses supplying electronic services to South African customers have historically operated under their own registration threshold and rules. If you are a foreign digital supplier, treat this article as background and take specific advice on the electronic services regulations.
Businesses supplying commercial accommodation have a separate threshold treatment.
Municipalities and certain public entities are dealt with separately in the Act.
If your business does not fall into one of these categories, the R2.3 million and R120,000 thresholds are the ones that apply to you.
Turnover Tax and VAT are separate systems
A common assumption after Budget 2026 is that businesses under R2.3 million must choose between Turnover Tax and VAT. They are separate regimes, and you can be on both.
The Turnover Tax threshold also rose to R2.3 million from 1 April 2026, with the 0% band extended to R600,000. Being registered for Turnover Tax does not prevent you from registering for VAT, voluntarily or compulsorily.
The five mistakes we see most often
Testing against the financial year instead of a rolling 12 months. The rolling test almost always trips first.
Leaving zero-rated sales out of the calculation. Exports count. Businesses that export heavily are frequently liable long before they realise.
Including exempt income in the calculation. Residential landlords in particular often think they are near the threshold when they are not in the system at all.
Assuming the higher threshold deregistered them automatically. It did not. Obligations continue until SARS confirms a final tax period.
Waiting for the accountant's year-end to find out. By then you may be eleven months late, with backdated output tax and interest at 10.25%.
Frequently asked questions
Is the VAT registration threshold R1 million or R2.3 million? R2.3 million, from 1 April 2026. The R1 million threshold applied from 2009 until 31 March 2026. If you are reading an older article or guide, check its date — a great deal of published South African VAT content still quotes R1 million.
Does the R2.3 million threshold apply to turnover or profit? Neither, strictly. It applies to the value of taxable supplies — your standard-rated and zero-rated sales. Exempt income and capital asset disposals are excluded.
How long do I have to register once I cross the threshold? 21 business days from the date you became liable.
Do zero-rated sales count towards the VAT threshold? Yes. Zero-rated supplies are taxable supplies charged at 0%, and they count in full towards both the R2.3 million and R120,000 thresholds. Exempt supplies do not.
Can I register for VAT voluntarily if my turnover is under R120,000? Generally no. R120,000 in taxable supplies over the past 12 months is the voluntary registration threshold from 1 April 2026. Limited exceptions exist for businesses that have commenced an enterprise but not yet made supplies, and these require specific supporting documentation.
What happens if I registered for VAT when I did not have to? Nothing bad — voluntary registration is legitimate. You take on the compliance obligations of a vendor, and you gain the ability to claim input VAT. Whether that trade is worth it depends almost entirely on whether your customers are themselves VAT vendors.
Will SARS cancel my VAT registration automatically now that the threshold has gone up? No. SARS only issues a notice of intention to cancel where a voluntarily registered vendor's taxable supplies have fallen below R120,000. Everyone else must apply.
I exceeded R1 million two years ago and never registered. What should I do? Speak to a tax practitioner about the Voluntary Disclosure Programme before SARS contacts you. Once an audit or inquiry is opened for that period, VDP relief is no longer available, and you face understatement penalties on top of the backdated tax and interest.
Getting this right without thinking about it
The threshold test is simple arithmetic — but it only works if someone is actually running it every month, against the right definition of taxable supplies, on books that are up to date. Most businesses that register late do so not because the rule is hard, but because nobody was watching.
Smartbook keeps your books current month by month, tracks your rolling 12-month taxable supplies against the threshold, and tells you before you cross it rather than after. If you do need to register, we handle the SARS application, the supporting documents and the five-business-day document requests.
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Last reviewed: 26 July 2026. Written by the Smartbook team — SAIPA and SAICA accredited, SARS registered tax practitioners. This article is general guidance based on the VAT Act and SARS publications current at the date of review; it is not advice on your specific circumstances. Thresholds, rates and deadlines change — verify against sars.gov.za or speak to us before acting.
Primary sources: SARS — Value-Added Tax · SARS — Budget 2026 Frequently Asked Questions · SARS — Register for VAT · SARS — Voluntary Disclosure Programme