A vendor’s VAT registration may be cancelled by the Commissioner or on written request by the vendor if certain requirements are met. When a vendor ceases to be registered for VAT, section 8(2) of the Value-Added Tax Act (VAT Act) deems certain goods and rights forming part of the assets of the enterprise to have been supplied immediately before deregistration.
In the budget speech, Finance Minister Enoch Godongwana announced that, effective 01 April 2026, South Africa’s VAT registration threshold will increase from R1 million to R2.3 million. In addition, the voluntary registration threshold will rise from R50,000 to R130,000. This change affects businesses that choose to register despite not meeting the compulsory threshold. Businesses with significant input costs may benefit from remaining registered to recover VAT on expenses.
What are the reasons to cancel a VAT registration?
A vendor may apply in writing for cancellation of a VAT registration where the value of taxable supplies will be less than the compulsory registration threshold of R2.3 million in any consecutive period of 12 months.
The Commissioner may cancel a VAT registration where:
- The vendor has ceased to carry on the enterprise and will not commence again within the next 12 months;
- The enterprise never actually commenced or will not commence within the next 12 months.
- The vendor no longer complies with the requirements for compulsory or voluntary registration;
- The vendor has failed to furnish a return that is required for purposes of calculating the VAT, or
- The vendor was registered under a voluntary registration and: a. has no fixed place of abode or business;
b. does not keep proper accounting records;
c. has not opened a bank account in respect of the enterprise; or
d. was previously registered under the VAT Act or Sales Tax Act and failed to perform any duty imposed under those Acts.
Where a vendor has ceased all enterprises, the cancellation normally takes effect from the last day of the tax period in which the vendor ceased to carry on all enterprises. However, the Commissioner may determine the effective date to be another date.
Any of a vendor’s separately registered enterprises/divisions/branches may also be cancelled if:
- The vendor applies in writing;
- The main registration is cancelled (in which case, all the branch registrations will be cancelled); or
- It appears to the Commissioner that the duties under the VAT Act or the Tax Administration Act have not been carried out properly.
The effect of the cancellation of a branch registration is that all duties revert to the main registration.
NOTE: SARS cannot finalise a cancellation of registration as a VAT vendor until all the outstanding liabilities and obligations in terms of the VAT Act have been resolved or settled.
How to cancel a VAT registration
- Complete a VAT123e – Application for the cancellation of registration of a person in respect of all his enterprise forms. Use the VAT123T form to apply for the cancellation of a separately registered enterprise.
- You may send an email with the cancellation request.
- Make a virtual appointment via our eBooking system by selecting the following options:
Reason category: Other
Reason for appointment: VAT and PAYE registration/deregistration
The application for cancellation form must be submitted to the SARS branch where the vendor is registered. The circumstances that give rise to the cancellation must be clearly stated on the form or in a separate letter attached thereto.
A vendor must continue to charge VAT on supplies made and account for output tax and deduct any input tax up to the last day of the final tax period, as was advised by the Commissioner. Late payment of VAT will attract penalties and interest.
The Commissioner will issue a notice of cancellation of registration, which will also inform the vendor of the date on which the cancellation takes effect and the final tax period. In respect of the final tax period (as indicated by the Commissioner), the vendor must declare output tax in field 1A of that VAT return. Output tax on certain assets on hand at the date of ceasing to be an enterprise must be declared together with any other output tax and input tax in the VAT return for that final tax period.
Before deregistering, the following is applicable:
- The goods and rights currently forming part of the assets of the enterprise
- Whether input VAT was previously claimed on those assets
- The potential output VAT that could arise under the deemed supply rules
- Potential exclusions contained in the provisos to section 8(2).
Under the VAT Act, a business that ceases to be a vendor is deemed to have supplied all its enterprise assets immediately before deregistration. This includes trading stock, capital assets, consumables, and certain rights associated with the business.
As a result, output VAT must be accounted for on these assets. The amount payable is calculated based on the lower of cost or market value. This deemed supply can create a significant one-off tax liability, which must be settled in the vendor’s final VAT return.
Where enterprise assets remain in the business, the deemed supply rules may trigger a once-off VAT liability, even though no assets have been sold and no cash has been received.
Section 8(2) of the VAT Act determines that, subject to certain exclusions, a person who ceases to be a vendor will be deemed to have supplied any goods which formed part of his assets on the day before he is deregistered on which an input tax credit was allowed. This means that output tax will have to be calculated on all assets and paid over to SARS. For example, when a machine was purchased to make taxable supplies and on the day of deregistration the machine is still owned by the company, there will be a deemed sale on the machine, and output tax will be charged on the sale amount and must be paid over to SARS. When applying this to your entire organisation, it may amount to a large expense, causing serious cash flow problems if the deregistration has not been properly planned.
Extract of Section 8(2) of the VAT Act:
“8. Certain supplies of goods or services deemed to be made or not made
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For the purposes of this Act, where a person ceases to be a vendor, any goods (other than any goods in respect of the acquisition of which by the vendor a deduction of input tax under section 16(3) was denied in terms of section 17(2)) or right capable of assignment, cession, or surrender, which in either case then forms part of the assets of his enterprise, shall be deemed to be supplied by him in the course of his enterprise immediately before he ceased to be a vendor, unless the enterprise is carried on by another person who, in terms of section 53, is deemed to be a vendor. Provided that where such right is so deemed to be supplied, that supply shall be deemed to be a supply of a service.”
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Note the references to Section 16, which is “Calculation of tax payable”, and Section 17, “Permissible deductions in respect of input tax”.
Minor relief is granted in determining the value of the deemed supplies when deregistering. The value of the goods that are supplied will be determined in accordance with section 10(5). According to this provision, the value to be used for the calculation will be the lesser of the cost to the vendor of the acquisition, manufacture, assembly, construction, or production of such goods or services and the open market value of the supply.
Vendors should not simply deregister for VAT based on the new R2.3 million per annum threshold before obtaining professional advice, as several conditions exist, and a lapse of judgement may cause cash flow problems if not properly planned.