Effective 1 January 2026, any school registered under the South African Schools Act No. 84 of 1996, is required to deregister for Value-added Tax (VAT). Whilst this legislation was proposed in the 2025 tax amendments, it was only promulgated on 1 April 2026. As a result, this change may have been overlooked by schools and the governing bodies thereof.
The exiting of the VAT system gives rise to a deemed output VAT (“exit VAT”) using the VAT fraction of 15/115 on the lower of cost or open market value in respect of assets that were part of that school’s VAT “enterprise” as at 31 December 2025, which input tax was likely claimed on in prior VAT periods. These assets may include furniture, equipment and consumables (e.g., stationery or cleaning materials). This calculation may have certain complexities due to schools generally having mixed supplies (exempt and taxable supplies) hence the apportionment rules must be properly considered.
The deregistration is not automatic hence schools will have to apply for deregistration. The exit VAT may have significant cash flow implications where input tax was claimed on assets still held by the school. To assist with this, relief has been provided for schools to pay over the exit VAT in equal monthly instalments over 12 months.
Due to the retrospective application of this law, SARS have issued a Frequently Asked Question (FAQ)page on their website which contains some practical steps relating to the period 1 January 2026 to date, where schools have not yet undertaken the deregistration process. However, it is highly recommended that you seek professional advice before commencing this deregistration process to ensure that the exit VAT is calculated correctly and relevant cash flow effects are properly considered.
Please contact your nearest PKF Office should you require any assistance with this process.
