The increase in the VAT registration thresholds is a welcome shift for small businesses.

From 1 April 2026, the compulsory registration threshold rises to R2.3 million, while the voluntary threshold increases to R120,000. This adjustment reduces the administrative burden and compliance cost that many growing businesses have carried for years.

For some, it also creates an opportunity to deregister for VAT.

Businesses that no longer exceed the new threshold may apply to cancel their VAT registration. On the surface, this appears to be a straightforward way to reduce admin and improve cash flow. In practice, the decision requires careful consideration.

The previous threshold had not kept pace with inflation since 2009. As a result, many smaller businesses were drawn into the VAT system earlier than necessary, increasing compliance requirements relative to their size. The new threshold provides breathing room and may allow businesses to grow without the immediate pressure of VAT administration.

At the same time, deregistration introduces its own risks.

Before VAT registration can be cancelled, all outstanding obligations must be settled. SARS will confirm the effective date of deregistration and the final VAT period. From there, additional tax implications arise.

One of the most significant is the requirement to account for output VAT on assets held at the date of deregistration. This means the business must declare and pay VAT on the value of certain assets, even though no cash transaction has taken place.

There is also the reversal of input VAT on unpaid creditors.

If suppliers have not been paid within 12 months, previously claimed input VAT must be reversed and accounted for as output VAT. This rule applies throughout the VAT lifecycle, but it is enforced immediately before deregistration.

These adjustments are commonly referred to as exit VAT.

The impact can be immediate and substantial. What appears to be a move to improve cash flow can, in reality, create a short-term cash obligation that places pressure on the business.

Deregistering may still be the right decision, but timing and planning are critical.

Understanding the full financial impact, modelling the outcome, and aligning the process with your cash flow position will determine whether the move adds value or creates unnecessary strain.

Before making any changes, ensure the decision is based on more than just the threshold.