VAT threshold relief for small businesses and contractors

The long-held VAT turnover threshold of R1 million will finally be raised to R2.3 million from 1 April 2026. This was announced by Finance Minister Enoch Godongwana in his 2026 Budget Speech.

The limit remained the same for 17 years, meaning small businesses, sole proprietors, freelancers, consultants, professionals and those operating in the gig economy billing more than R1 million a year were forced to register for VAT with the South African Revenue Service (SARS).

The increase is long overdue as many small businesses are now being pulled into the VAT net long before reaching sustainable scale, Micaela Paschini, team lead for tax legal at Tax Consulting SA and Megan Langton, tax attorney at Tax Consulting SA, said this week ahead of the Budget.

While most small business owners and the self-employed would prefer to avoid VAT registration, in some cases it can be advantageous, and businesses can register for VAT voluntarily. The threshold for businesses to register voluntarily for VAT will also increase from R50 000 to R120 000 a year on 1 April  2026. This means that businesses with a turnover exceeding R120 000 over 12 months can voluntarily become VAT vendors.

Turnover tax threshold increased

In addition to the increased VAT threshold for small businesses, National Treasury also announced in the Budget that the turnover threshold below which businesses can make use of the simplified tax on turnover will increased from R1 million to R2.3 million. This is the first increase since this small business tax was implemented in 2012. Read more: How do I declare business income for tax?

The turnover tax brackets have also been reviewed and adjusted for inflation for the first time since this tax was introduced. The first R600 000 of turnover a year – up from R335 000 a year – is now tax-free. Tax rates from 1 percent to 3 percent apply to different turnover brackets up to R2.3 million.

VAT registration

Paschini and Langon said the long-held VAT registration threshold for smaller businesses and the self-employed resulted in administrative pressure, cash‑flow strain and a competitive disadvantage when businesses and the self-employed crossed the threshold. The tax advisers suggested that between R2.2 million and R2.5 million was a more realistic threshold.

SMEs often struggle with uneven cash flow, late customer payments, and limited ability to absorb VAT timing mismatches, they say.

Registering as a VAT vendor requires small businesses and the self-employed to maintain good invoicing systems and financial statements and to file VAT returns frequently during the tax year. Most businesses or individuals require a tax adviser to help them comply with the VAT requirements and requests for SARS to verify VAT inputs and outputs, Leonard Willemse, a director of tax specialists, AJM, told the South African Institute of Taxation’s annual Tax Indaba last year.

Charging VAT also makes these businesses and individuals goods and services less competitive that those of businesses and individuals earning below the threshold.

No increases

If you are trading as a sole proprietor in your own name or in a partnership and your taxable supplies in the tax period do not exceed R2.5 million, you can account for VAT when you receive payment for goods or services on which VAT should be charged, rather than when you invoice. This limit for payment or cash basis of accounting for VAT has not increased.

The R30 million turnover threshold for larger businesses that must file VAT returns monthly instead of every two months has also not been increased as SARS is modernising its VAT system to real‑time VAT reporting and e‑invoicing.