Updated for 2026 Thresholds

How to Deregister for VAT

Navigate the SARS VAT123e process, understand the financial impact of "Exit VAT", and learn the truth about the 18-to-24-month waiting period.

Video Summary: The "Great VAT Exit"

In this 12-minute deep dive, Heinrich Grove explains why 2026 is a massive transition year for VAT vendors.

  • New 2026 Thresholds: Compulsory registration moves to R2.3 Million; Voluntary moves to R120,000.
  • The 21-Day Rule: If you cease trading, you must notify SARS within 21 days—don't just file "Nil" returns.
  • The 24-Month Wait: Deregistration isn't instant. You MUST keep charging VAT until SARS confirms the exit.
  • Payment Relief: SARS may allow you to pay your "Exit VAT" liability over 6 months to manage cash flow.

Note: SARS may compulsory deregister you if they see your turnover is consistently too low. Be prepared for a verification call!

A Critical Shift: The New Thresholds

Effective from 1 April 2026, the compulsory VAT threshold is R2.3 million (previously R1 million), and the voluntary registration threshold is R120,000. If your sales consistently fall below the R2.3 million mark, you might decide that the administrative burden of bi-monthly VAT returns is no longer worth it, making deregistration the best financial choice.

The Hidden Cost: "Exit VAT"

Deregistering from VAT is not as simple as flipping a switch. When you cancel your VAT number, SARS essentially treats it as if you sold all your business assets and stock to yourself. This is known as a Deemed Disposal.

Warning: Calculate Before You Cancel

If you deregister, you will be hit with an "Exit VAT" bill on your final return. You must pay 15% Output VAT to SARS on:

  • Assets & Equipment: Any business assets (vehicles, laptops, machinery) where you previously claimed Input VAT. You pay VAT based on the lower of the original cost or the current open market value.
  • Trading Stock: All inventory and stock sitting on your shelves on the date of cancellation.

The 18 to 24 Month Waiting Period

Do not assume that submitting the VAT123e means you are instantly deregistered. In reality, practitioners report that SARS is currently taking anywhere from 18 to 24 months to finalize deregistration requests.

Crucial Rule: You are legally regarded as a VAT vendor until SARS officially notifies you of your deregistration date. You MUST continue charging VAT and submitting your VAT201 returns during this entire waiting period.

The Timeline Trap: When do I stop charging VAT?

This is the most common point of confusion for business owners. Let's look at a practical example:

Scenario: You submit your VAT123e form on 1 May 2026, requesting that date as your cancellation.

  • Do I stop charging VAT on 1 May? No! You must continue to charge VAT on all taxable supplies until officially canceled.
  • Do I stop filing returns? No! You must keep filing your VAT201 returns until you receive formal notice.
  • When do I actually stop? Only when SARS sends you a formal notice of cancellation confirming your official deregistration date.
  • How is the Exit VAT calculated? The "Deemed Disposal" (Exit VAT) is calculated based on the assets and stock you hold on the day immediately before the official deregistration date chosen by SARS.

Bookkeeping Prep: The "Two-Phase" Rule

Because of the 18-to-24-month waiting period, your bookkeeping prep actually happens in two distinct phases: an initial estimate for the VAT123e application, and a final calculation on the exact date SARS cancels your registration.

1. Stock Take (Done Twice)

Conduct an initial physical count for your application. Later, you must do a final stock take on the exact day before your official cancellation date to declare on your final VAT201 return.

2. Asset Register

Identify every asset where Input VAT was claimed. You need an initial estimate now, but the actual open market value must be recalculated on your final deregistration date.

3. Bank Statements

SARS typically requires 12 months of bank statements leading up to your application date to verify your turnover has dropped below the threshold. Ensure these are ready on day one.

The 4-Step Deregistration Process

Ensure 100% Compliance

SARS will reject a cancellation if you have outstanding VAT201s, missing IT14s, or any unpaid debt. Your profile must be completely clean first.

Prepare Form VAT123e

Complete the VAT123e form. You must state the exact reason for cancellation and the specific date you ceased trading or fell below the threshold.

Submission & Verification

Submit via a SARS appointment or through a Tax Practitioner's portal. Crucial: Be fully prepared for SARS to reach out and inquire about your submission. This is why working with a VAT specialist is so important—they manage these inquiries on your behalf to ensure your application isn't dismissed over a simple misunderstanding.

The Final Return

Once approved (which may take up to 24 months), you must submit a final VAT201 return. This includes your normal trading plus the output tax on your remaining assets and stock.

VAT Specialist Support

Connect with a VAT Specialist

Don't navigate the 2-year waiting period alone. Fill out the form below, and we will connect you with a verified Tax Practitioner who can handle the SARS submissions and Exit VAT calculations for you.

VAT Deregistration: Frequently Asked Questions

Common questions regarding the 2026 threshold changes and the cancellation process.

No. While you aren't required to be registered if you're under R2.3 million, the choice is yours. However, if your turnover drops below the voluntary threshold (R120,000), SARS will notify you of their intention to cancel your registration.

You have the right to object. You must submit a Notice of Objection (ADR1) along with a new VAT101 application and supporting documents within 80 business days. It’s highly recommended to have a professional handle this to ensure your reasons are technically sound.

Definitely not. You are legally required to keep charging VAT and filing your VAT201 returns until the very last day of the final tax period SARS assigns to you. Stopping early can lead to massive penalties.

You must account for VAT on any enterprise assets you still hold where you previously claimed input tax. This includes:
  • Fixed assets (office furniture, equipment, machinery).
  • Trading stock/inventory on hand.
  • Rights or property used in the business.
Note: Assets where input tax was denied (like passenger motor cars) are usually excluded.

Yes. SARS typically allows the final VAT liability to be paid in six equal monthly installments. This helps ease the cash flow shock that often comes with a "deemed disposal."

Yes, you can claim any previously unclaimed input tax on your final return, provided you have the correct documentation and the claim is not older than 5 years. This is a great way to reduce your final Exit VAT bill.

Not necessarily. Since both the Turnover Tax and VAT compulsory thresholds are now R2.3 million (effective April 2026), most micro-businesses choose to leave the VAT system when switching to Turnover Tax to simplify their paperwork.

Yes. If you claimed Input VAT on an invoice but haven't actually paid that supplier within 12 months, you must account for that VAT as Output Tax in your final return. SARS views this as "clawing back" a benefit you haven't technically earned yet.

You only pay Exit VAT on assets where you were permitted to claim Input VAT. For example, if you bought a passenger motor vehicle (where VAT claims are usually denied) or received a donated asset for no consideration, these are typically excluded from the Exit VAT calculation.