Latest / Tax Break: South African tax for professionals / Changes to the VAT registration thresholds – what should vendors in the R1m to R2,3m bracket do now?

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Changes to the VAT registration thresholds – what should vendors in the R1m to R2,3m bracket do now? · Tax Break: South African tax for professionals

• 0:11
  One of the major changes announced in the 2026 budget is
• 0:16
  that the VAT registration threshold has increased for the
• 0:20
  first time since 2009 and it's now moved up from 1,000,000 Rand
• 0:25
  to 2.3 million Rand per annum. So the question is really what
• 0:30
  does this mean for vendors who are in this space between making
• 0:35
  a million rands supplies during a year and 2.3 million?
• 0:39
  That's what we'll be looking at in this episode of Tax Break,
• 0:43
  your podcast for South African tax professionals and
• 0:46
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• 2:05
  My e-mail address is also in the show notes, right.
• 2:09
  So back to our topic for today and Spotify lost of threshold
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  changes. So there was quite a bit of
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  pressure on the National Treasury to say, but there's a
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  lot of these thresholds in the in the tax legislation that that
• 2:22
  have not been updated for a long time.
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  So as part of a whole host of these changes, the VAT
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  registration threshold was increased from 1,000,000 Rand,
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  two 2.3 million Rand together with so that's the taxable
• 2:37
  supplies during a 12 month period.
• 2:39
  Of course, where if you cross the 2.3 million Rand, you must
• 2:43
  register as a VAT vendor. This also, and we'll talk about
• 2:48
  it in a bit more detail just now, an option to register as a
• 2:52
  VAT vendor on a voluntary basis. So previously there's a minimum
• 2:58
  level of taxable activity that you need to have to register on
• 3:02
  a voluntary basis. That threshold has also moved up
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  from 50,000 Rand per year to 120,000 Rand in taxable supplies
• 3:11
  per year. And these two new thresholds
• 3:15
  will become effective from one April 2026.
• 3:19
  Of course, this has been announced in the budget, it's in
• 3:23
  the in the draft Rights and Monetary Amounts Bill.
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  But as we learned last year with the VAT rate changes, all these
• 3:30
  things are still subject to parliamentary approval.
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  Now I doubt that it doesn't seem as if there is any resistance to
• 3:39
  this one. So one would suspect that it
• 3:41
  would it would go through the processes.
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  Now maybe just a bit of of why would the, the, the the
• 3:53
  threshold being increased? So it's the first time since
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  2009. So at that point it was
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  increased from 300,000 grand in taxable supplies to 1,000,000
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  Rand in taxable supplies. And the real reason why the VET
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  registration threshold would increase is to do to ensure that
• 4:14
  small businesses can be saved their compliance.
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  If that goes with that, both from a, from a tax payer
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  perspective, but also really from usage perspective to vote
• 4:26
  to be able to focus the, the, the compliance and the
• 4:30
  monitoring efforts on the higher value vendors.
• 4:34
  So it is really something that's intended to, to provide relief
• 4:39
  to smaller businesses. So as I've mentioned, there's,
• 4:44
  there's a compulsory threshold. So that's when a small business
• 4:47
  they need to register, There's no you, you don't have any
• 4:52
  election nor or optionality if you want to register or not.
• 4:57
  And they stood 3 years with a 2.3 million Rand threshold comes
• 5:01
  into play. The first one is where a
• 5:05
  person's taxable supplies over the past 12 months.
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  So in other words, looking back as exceeded the 2.3 million nine
• 5:13
  threshold now in the past 1,000,000 Rand ohh.
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  Then if if you look forward, it's, it's reasonably expected I
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  under written, written contractual obligations that you
• 5:27
  will exceed that threshold. Um, for the next, if you look
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  forward into the next 12 months and failure to register if you,
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  if you have to register on a compulsory basis would mean that
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  your registration goes back to when you should have registered.
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  And with that comes penalties and interest.
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  I think with the thresholds moving up, our focus for today
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  is not so much on penalties and interest because we really
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  moving into the space where persons who had to be registered
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  may no longer have to be registered.
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  And that's really where the the question comes from on, on, on
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  the voluntary registration, I've already mentioned that there's a
• 6:09
  certain minimum threshold that you need to meet.
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  So in other words, you must make supplies of in the past more
• 6:17
  than 50,000 Rand taxable supplies steering during a 12
• 6:22
  month period that's now moved up to 120,000 grand.
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  And they are some other categories where depending on
• 6:31
  the nature of the the the the business.
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  So for example, in a mining context, they are some
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  regulations that says even if you haven't made these
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  thresholds, you, the Commissioner may issue
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  regulations to say, but these are circumstances under which
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  you can register. So I think when we are talking
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  about the the gap between the the 1,000,000 and the 2.3
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  million compulsory registration thresholds, it does make sense
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  to just step back a bit and ask, but why would someone and on a
• 7:08
  voluntary basis go and register for that.
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  So I guess the one is that if you're looking in a, in a B2B
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  environment, so in other words, it's a, it's a business making
• 7:21
  supplies to to other businesses. They, they're also VAT
• 7:26
  registered. It may be that that has got them
• 7:29
  a minimum there. There's a minimal impact on on
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  on your pricing because your customers can in any event claim
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  the the, the the fact that you are charging back from the
• 7:42
  supplies that you make to them. Of course, in a B2C, so in a
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  business to, to consumer, OHH, customer, we, we, we're dealing
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  with, with unregistered clients that typically if you're looking
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  at in a retail context, you're selling to, to members of the
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  public as soon as you register for that, you to 15% of all your
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  competitors may not necessarily be be registered for that.
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  And if the consumer isn't going to ask, what are you, are you
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  paying a portion to search or not?
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  The consumer would just look at the price that they would
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  eventually pay. And in that context, it may
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  actually be to your disadvantage to to register for that because
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  your product if you, if you take your normal pricing and you add
• 8:37
  that on top of that would actually become 15% more more
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  expensive or if you then be the burden of the VAT that eats into
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  your profitability. So what you often see is that
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  the reason why these smaller businesses would register for
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  that is that especially if it's a capital intensive business,
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  you would find that if you need to have a capital outlay to
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  acquire property, professional types of fees to to get the
• 9:12
  business started. If you need to buy equipment,
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  then the input tax that you can claim on on those capital
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  outlays may well compensate for the fact that your product would
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  would have to be. Your product pricing becomes a
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  bit of a problem if you supply it to the public so often.
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  The drive to register on a voluntary basis would be because
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  of the fact that as of at vendor, you can claim input tax
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  on your capital layouts. Initially, no looking at so, So
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  what we essentially saying is because the the the threshold is
• 9:55
  moved up, there are some vendors who were previously required to
• 10:00
  be registered who are now for all practical purposes
• 10:05
  registered on a voluntary basis if they if they keep on being
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  registered. So there's a few important
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  things that such indicate in their they've published an FAQ
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  on the 2026 budget. The first important point for
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  these vendors in that taxable supply space between 1,000,000
• 10:26
  and 2.3 million, these registrations that are now
• 10:31
  essentially voluntary would would not be would not be
• 10:36
  automatically cancelled. So that's that.
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  So you, you'll remain at that vendor if it happens that you,
• 10:47
  that you don't meet the voluntary, the revised voluntary
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  registration threshold, the 120,000 name sash indicates that
• 10:56
  they will send you a notice of intention to cancel your, your,
• 11:02
  your VAT registration. And then this is something that
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  tax payer can consider and act upon.
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  But for the the vendors basically between the 120 and
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  the 2.3 million, there's nothing is going to happen and it's the
• 11:19
  vendor's choice to to stay registered or to deregister said
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  I didn't I think takes us to what was really the critical
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  point of discussion for this episode and that is should you
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  then would it make sense to the register or did register are
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  there. So if we look at the VAT Act,
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  there's a clear mechanism in Section 24 that would allow
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  vendors to deregister or apply for deregistration if they don't
• 11:51
  meet the compulsory registration threshold.
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  So there's definitely an option to apply to the register.
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  Now, I think what the they would be the the economics of saying,
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  but could your pricing perhaps be a bit more competitive if
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  you're dealing with let's say members of the public who are
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  who are not that vendors and won't be able to claim the input
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  tax back. It could.
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  It could well be that you that you could drop your price or
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  that there's a bit more offered on the table if you don't have
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  to pay the the vet over to SASH. The critical thing that you
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  should have every member is that when you see being a vendor,
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  you've got a deemed supply of all your goods and rights that
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  form part of the enterprise immediately before your DE
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  registration. So this deemed supply would then
• 12:48
  trigger an output tax, so at 15% and it's based on the laser of
• 12:54
  the cost or the open market value of these goods or rights.
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  So it, if we're looking at something like trading stock
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  that you purchased while the, the, the vendor was a vendor,
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  there would be an output tax adjustment on that, essentially
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  putting you back into the position where you would have
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  been at you they never claimed the input tax because that's
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  where you would have been. If you now carry this out, this
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  stock forward into your business where you're no longer
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  registered as a vendor. The same for for fixed assets.
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  If you've got the property, for example, then you could have
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  quite a significant, um, output tax on that property because the
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  Section 8 two adjustment is putting you back into the
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  position where you would have been at.
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  You acquired that property as a non vendor and not being able to
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  claim the claim the input tax. There are some exceptions.
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  So assets where you didn't have the right or the ability to
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  claim input tax like motor vehicles, motor cars that would
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  still be you don't have to account for output tax
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  adjustments on those. Now I think from a practical
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  perspective, before you take the decision to say you are going to
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  deregister or stay registered, I think it does make sense to do a
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  bit of financial modelling to say what's the effect on your on
• 14:24
  your revenue, your take home income if you charge that or
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  not. So are you absorbing the effect
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  of that currently or not? But then also to say this once
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  off costs associated with no longer being a that vendor, this
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  exit, if we can call it that an exit cost from that perspective,
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  how much is that? And this I think those are the
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  two things that you that you need to compare.
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  So they it could be that because of if you've got a depreciating
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  asset, the fact that you're looking at the at the laser of
• 15:03
  coastal market value that you may not be giving all the input
• 15:07
  tax that you claimed back. So, so it it might have been
• 15:11
  done the nature of your assets to see how big the effect of
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  this would be. And the last point is perhaps
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  also just to make sure that, and I think it's also a practical
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  consideration, if you are no longer a vendor going forward,
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  if you've got any unclaimed input tax, then you need to make
• 15:32
  very sure that you've claimed that by the time that you seize
• 15:36
  being a vendor because your ability to claim that input tax
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  would then fall away. So there are quite a few
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  practical considerations that you would have to bear in mind
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  if you were to take that step and deregister as a VAT vendor.
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  So the take on points for today, I think firstly is to be aware
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  of the fact that the thresholds have changed both the the the
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  thresholds for compulsory registration and for voluntary
• 16:09
  registration. They've changed with effect from
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  one April 2026 for these vendors in that bracket between 120,000
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  Rand with its the revised voluntary registration threshold
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  and the 2.3 million being the revised compulsory registration
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  threshold. And possibly I think the more
• 16:33
  difficult decision would be for those between the 1,000,000 that
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  used to be the compulsory registration threshold and the
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  2.3 where it's now you've got a decision to make.
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  Do you remain registered as a vendor or not?
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  And I think the last point that's in my mind that they can
• 16:53
  point before we close off the episode is that in making this
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  decision, you need to weigh up whatever benefit you're going to
• 17:01
  get potentially from a revenue perspective for competitiveness
• 17:05
  perspective versus the cost of the Section 8 to deemed supply
• 17:11
  of your, your, your goods and your rights.
• 17:14
  And it could be that it is quite expensive to get out of the vet
• 17:18
  Nate, because you need to be, you need to get back to the
• 17:21
  position where you would have been at, you never been a
• 17:24
  vendor. So that's it for today's
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  episode. I hope that you've enjoyed it.
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  Just a quick reminder, it's always the podcast is not
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  intended to be tax advice. It's for general information
• 17:37
  purposes only. Until next time, goodbye.