Here’s the updated version with the new VAT threshold of R2.3 million (previously R1 million) woven in naturally and casually.
What is VAT? (Explained Simply)
VAT, or Value Added Tax, is basically a tax we all pay when we buy most goods and services in South Africa. Businesses collect it on behalf of SARS. It sounds technical, although the core idea is actually very simple.
The simple version
VAT gets added at every stage of making and selling a product or service. The standard VAT rate in South Africa is 15%, and it applies to most goods, services, and imported items. Customs handles the VAT on imports.
Some things are taxed at 0%, and a few are exempt altogether. A common example is basic food items.
Anyone running a business, individuals, partnerships, trusts, municipalities, and even foreign donor‑funded projects, can register for VAT. You just need to complete the application and follow the SARS process. That is IF you qualify.
Who must register for VAT?
You must register if:
- Your business makes (or will make) more than R2.3 million in taxable supplies in any 12‑month period.
- You have a written contract showing you’ll exceed R2.3 million in the next 12 months.
You may register voluntarily if:
- You’ve made more than R50 000 in taxable supplies in the past 12 months.
- You’re a qualifying micro‑business registered for Turnover Tax and you meet the voluntary VAT registration requirements.
The compulsory VAT threshold was previously R1 million. This changed in the budget speech of February 2026.
The Pros and Cons of VAT
Now that the basics are clear, here’s what VAT registration looks like in real life.
The Pros
- You can claim input VAT
When you buy goods or services for your business, you can claim back the VAT you paid. That lowers your actual cost. - Bigger clients prefer VAT vendors
Large companies can claim VAT back, so they often prefer working with VAT‑registered suppliers. Some will not work with non VAT-registered vendors. - It encourages proper record‑keeping
Filing VAT returns every two months forces you to keep your books tidy, which helps your business long‑term. - Refunds come back to you
If SARS owes you a VAT refund, that money gets paid back into your bank account.
The Cons
- Some industries expect VAT registration
Many tenders and corporates won’t work with you unless you’re VAT registered. - You may carry the VAT cost upfront
You must declare and pay VAT to SARS even if your customer hasn’t paid you yet. That can squeeze cash flow. - Cash flow can get tight
Smaller or newer businesses often struggle to keep enough aside to pay VAT when it’s due. - Admin increases
VAT adds to the pile of PAYE, UIF, SDL, payroll, IRP5s and everything else. It’s easy to get stuck in admin instead of growing your business. - Extra bookkeeping costs
VAT compliance often means hiring a bookkeeper or accountant to keep things accurate. - Service businesses claim less VAT back
If you sell a service (like accounting), you don’t have many VAT‑claimable expenses. Salaries don’t include VAT, so your input claims are limited.
Final Thoughts
Registering for VAT can be compulsory or voluntary, and the impact varies from business to business. For some, it’s a strategic advantage. For others, it’s a cash‑flow and admin challenge.
If you would like more info or would like to register for VAT, please contact us.
More information is available here:
All the information in this post, is available on the SARS website: www.sars.gov.za