VAT changes for schools in South Africa

South African schools registered under the South African Schools Act must exit the VAT system following changes that took effect from 1 January 2026.

On 18 September, the South African Revenue Service (SARS) announced that supplies made by schools are now exempt from VAT. This means most schools no longer qualify for registration as VAT vendors.

SARS said the change applies to schools registered or provisionally registered under the South African Schools Act.

Affected schools must apply to cancel their VAT registration rather than wait for SARS to deregister them automatically. They can do this by completing the VAT123e application and submitting it to SARS.

The form must state that all enterprise activities ceased on 31 December 2025. The deadline for applications is 30 September 2026.

Schools can email the completed VAT123e form to SARS or make a virtual appointment through the SARS eBooking system for VAT and PAYE registration or deregistration.

The revenue service said it will also send letters to affected schools explaining the change and the required documentation.

Although schools will no longer operate as VAT vendors, the change does not mean there is no VAT liability associated with leaving the system.

Schools may need to account for exit VAT on certain enterprise assets held as of 31 December 2025. These can include assets or trading stock on which the school previously claimed input VAT.

SARS explained that the liability is generally calculated using the lower of the asset’s cost or open-market value.

The rules can apply to assets regardless of how long the school has owned them. SARS specifically noted that there is no five-year prescription rule for exit VAT.

This means that schools need to review their records and determine which assets were part of their previous taxable enterprise.

Schools may use records such as financial statements, fixed-asset registers and stock records to determine the relevant values.

However, schools do not have to settle the exit VAT immediately, as they will only be liable to pay it from 1 January 2027.

The amount can be paid in 12 equal monthly instalments. Schools that require a longer repayment period will need to agree on this with SARS.

Penalties and interest will not apply where exit VAT is paid in accordance with the agreed instalment arrangement.

However, schools must still declare the relevant exit VAT through the required VAT return correction process.

What schools must do now

The immediate priority for affected schools is to determine whether they fall within the new VAT exemption and then complete the deregistration process.

Not every school has to leave the VAT system. Schools that qualify as welfare organisations and conduct qualifying welfare activities can apply to remain registered for VAT in respect of those activities.

However, they must obtain a VAT ruling from SARS confirming their status and the activities that qualify. Applications for these rulings must also be submitted by 30 September 2026.

Schools should also review their VAT records, particularly assets on which input VAT was previously claimed, and determine whether exit VAT is payable.

They should check whether VAT was charged or input tax was claimed incorrectly from 1 January 2026 and make the necessary corrections.

SARS said schools should issue credit notes and refund VAT that was incorrectly charged to customers. The VAT can then be accounted for through the relevant VAT return.

Where a school claimed input VAT on goods or services acquired from 1 January 2026, those claims may also need to be reversed.

This is important because the change affects the VAT treatment from the start of 2026, even though the deregistration process is taking place later in the year.