Value-Added Tax (VAT) Schools Exiting the VAT System
The purpose of the Frequently Asked Questions is to give taxpayers a comprehensive overview of the changes relating to schools and translating it into clear and practical guidance following the amendments that were made to the VAT Act in the Taxation Laws Amendment Act 5 of 2026, with effect from 1 January 2026.
From 1 January 2026.
No, schools must apply for deregistration.
SARS will in due course inform all schools of the process, forms and information that must be submitted for the application for deregistration.
A school must complete the Application for the cancellation of registration of a person in respect of all his enterprises (VAT123e) form.
State the reason for cancellation under Section A of the form as “All enterprise activities have ceased on 31 December 2025”.
Under Section B of the form, indicate the total value of enterprise assets held as at 31 December 2025, after deducting any adjustment where input tax was partly claimed.
Email the completed VAT123e form, together with a request for payment arrangements (if applicable), to [email protected] with the subject line “VAT deregistration – Schools”. Alternatively, book an appointment on the SARS website by selecting the reason category “Other” and the reason appointment “VAT and PAYE registration/deregistration”.
Applications must be submitted by no later than 30 September 2026.
SARS will consider the deregistration application and the payment arrangement request (if applicable). SARS will process any required corrections or remission requests before the deregistration.
The school must account for VAT on certain goods and rights retained as at 31 December 2025. This is commonly referred to as the deemed exit VAT.
Examples of goods include trading stock which is on-hand or any assets on which input tax was previously claimed. These are what is generally referred to as “enterprise assets”. VAT must be accounted for using the lesser of the cost or the open market value of the goods and rights.
The cost includes VAT incurred on the acquisition, manufacture, construction, or production of the asset, as well as additional costs. In certain connected‑person transactions, the deemed open market value on acquisition may form part of the cost.
No. Goods or services on which input tax was denied, such as entertainment expenses and motor cars, are excluded. Donated goods or assets acquired for no consideration are also excluded, because the cost of such assets is regarded as zero.
Assets are not excluded simply because they are more than five years old or because records are missing. Use the best information you have available to determine the cost or open market value of the assets, such as general ledgers, fixed asset registers and annual financial statements.
You must account for output tax if you deducted input tax, but your supplier was not paid by 31 December 2025.
To the extent that you have already accounted for the output tax, there is no further obligation when you cancel your registration as a vendor.
Yes. A school may be able to reduce its exit VAT liability if it previously only claimed a portion of the VAT on an asset that was used partly to make taxable supplies. An adjustment may be claimed for the VAT that was not previously deducted, provided the school has the required supporting documents set out under Item G in Interpretation Note 92: Documentary proof prescribed by the Commissioner.
A school that is unable to obtain information in relation to assets used partly to make taxable supplies may use the average of the apportionment ratio for the last five years, ending 31 December 2025 as a basis. For example, if the average ratio is 5%, the school will be allowed an adjustment of 95% of the VAT amount on the lower of the cost or open market value of the asset.
No, there is no prescription rule applicable to exit VAT. All assets and rights on hand on which input tax was deducted, are subject to exit VAT, regardless of date of acquisition.
Yes, you will be able to deduct the tax charged in your VAT 201 return for the tax period in which you have issued a credit note to the recipient and refunded the recipient.
The exit VAT is calculated by applying the tax fraction to the lower of the cost or open market value of goods or rights on hand as at 31 December 2025.
Yes. A Request for Correction (RFC) must be submitted via eFiling for the exit VAT liability, net of any adjustment for enterprise assets on which input tax was previously partly deducted. The RFC must relate to the VAT201 return for the tax period in which December 2025 falls.
The net exit VAT amount must be declared in field 1A of the relevant VAT201 return in which December 2025 falls.
SARS will generate a Payment Reference Number (PRN) for each instalment. Each PRN will be reflected in the signed agreement.
No. The school’s VAT filing category will not be changed.
Schools will only be deregistered once the exit VAT has been paid in full.
Such schools must apply for a VAT ruling confirming its status as a “welfare organisation”, its welfare activities and the extent for which it may remain registered as a vendor. Applications must be submitted by no later than 30 September 2026 to allow adequate time for the matter to be resolved, prior to 31 December 2026. See the VAT Rulings Process Reference Guide for details on the application process.
Yes, schools must submit nil returns, except for example where credit notes were issued for VAT charged on or after 1 January 2026.
Yes. Input tax or other deductions not previously made may be claimed, provided you have the prescribed documentary proof when the return is submitted and the deduction is made within five years from the date you became entitled to such deduction.
Input tax incurred before 31 December 2025 that was not previously claimed, may be claimed in VAT 201 returns up to the November 2026 tax period, provided supporting documents are held.
No, from 1 January 2026, all supplies made by a school are exempt from VAT and schools therefor cease to carry on all enterprises.
An exception only applies to schools that are welfare organisations and conduct welfare activities as confirmed in a VAT ruling.
You must declare the VAT charged on supplies on or after 1 January 2026 on your VAT 201 return for the relevant tax periods.
Yes, you will be able to deduct the tax charged in your VAT 201 return for the tax period in which you have issued a credit note to the recipient and refunded the recipient.
You will not be able to deduct the VAT charged and obtain a refund from SARS.
A school must issue credit notes for the VAT charged on any supplies made on or after 1 January 2026 and disclose them in VAT returns due on or before the November 2026 tax period.
You must submit a Request for Correction (RFC) in the relevant tax period to reverse the claim. Refer to Request for Correction on the SARS website for more details.
The net exit VAT amount must be declared in field 1A of the relevant VAT201 return in which December 2025 falls.
No, penalties or interest will not be payable by schools in this instance, as the law was amended with retrospective effect.
Schools are only liable to pay the exit VAT from 1 January 2027.
Schools are allowed to pay the exit VAT in 12 equal monthly instalments. Should schools require more than 12 months in which to pay the exit VAT, this must be agreed upfront with SARS. More details on this process will be communicated in due course.
No, penalties or interest will not be payable as long as you pay the amount of the exit VAT in 12 equal monthly instalments from 1 January 2027, or in such other period as agreed with SARS.
The application for payment arrangements must be emailed to [email protected] together with the VAT123e form. An example of a payment arrangement request may be found in the VAT Reference Guide – Schools Exiting the VAT System.
