South Africa’s VAT threshold increase from R1 million to R2.3 million gives SMEs more flexibility, but it also introduces a complex decision. Business owners must now weigh whether to deregister for VAT or remain compliant, based on financial and operational impact.
What does the VAT threshold increase mean for SMEs
The recent VAT threshold change allows more small businesses to operate without compulsory VAT registration.
This reduces administrative pressure, but it does not remove the need for strategic decision-making.
SMEs must assess whether deregistering supports their pricing, cash flow and long-term growth.
Should SMEs deregister for VAT in South Africa
Deregistering for VAT can reduce compliance and simplify operations, but it comes with trade-offs.
The right decision depends on:
- Customer base
- Cost structure
- Growth plans
Why experts warn against quick decisions
SME funder Lula cautions that deregistration is not a simple administrative step.
Shaheeda Solomon, Finance Manager at Lula, explains that it is a tax event that may trigger immediate liabilities.
Businesses may need to account for VAT on assets and stock, which can create unexpected costs.
Related articles
Benefits of VAT deregistration for SMEs
For some businesses, deregistration offers clear advantages:
- Reduced compliance and admin
- No VAT return submissions
- Potential pricing advantage for consumer-facing businesses
“If you’re selling directly to individuals, removing VAT from your pricing can make your offering more competitive, or improve your margins,” Solomon explains.
The hidden cost: losing input VAT claims
One of the biggest downsides is losing the ability to claim input VAT.
Once deregistered, VAT on purchases becomes a direct business cost.
“That’s often the hidden impact,” says Solomon.
Expenses that were previously recoverable may reduce overall profitability.
How your business model affects the decision
The impact of deregistration depends on how your business operates.
- Low overhead, consumer-focused businesses may benefit
- High-cost businesses may lose margin
- B2B businesses may face pricing challenges
“If your customers are VAT-registered businesses, they generally expect you to be VAT-registered too,” Solomon notes.
Without VAT registration, your services may appear more expensive to them.
Cash flow considerations for SMEs
Deregistered businesses may benefit from simpler cash flow.
Revenue received belongs fully to the business, without VAT obligations.
However, this must be balanced against increased input costs and potential pricing pressure.
Preparing for the new VAT threshold
SMEs approaching the R2.3 million threshold must plan ahead.
Once the threshold is exceeded, businesses have 21 business days to register for VAT.
Solomon advises businesses nearing R1.8 million turnover to:
- Clean up bookkeeping
- Implement VAT systems
- Prepare for compliance
Why VAT decisions should be strategic
VAT registration is not a tick-box exercise.
It affects pricing, profitability and competitiveness.
“The right choice depends on your customers, your cost structure and your growth trajectory,” Solomon says.
Business owners should assess the full financial impact before making a decision.
The VAT threshold increase gives SMEs more choice, but not less responsibility. Careful planning and a clear understanding of the implications remain essential.
Related articles
Read SA Business Integrator online
