VAT Rate is Going Up! Are You Ready for the Changes?
South Africa’s VAT rate is about to change for the first time since 2018. From 1 May 2025, VAT will increase from 15% to 15.5%—and another increase to 16% is expected in April 2026. These increases are driven by our government’s need to raise revenue. The income from VAT has been relatively flat—up just 0.4% last year. The National Treasury estimates that moving the rate to 17% could add R60 billion to national coffers. Although a 2% increase was proposed, it stalled due to coalition disagreements. President Ramaphosa suggested a compromise 0.75% increase, and the May 2025 hike is the first phase.
As an accountant, you must help your clients prepare for this transition. Let’s examine what’s changing and use simple examples to show how this will work in real life.
What's Changing?
New VAT rate from 1 May 2025: 15.5%
Another increase to 16% expected on 1 April 2026
Time of supply rules decide which rate to use (old or new)
SARS will update VAT returns (VAT201) to handle both rates
Certain exceptions apply—especially for ongoing services, lay-by agreements, and property deals
When Do You Use 15% or 15.5%?
The correct VAT rate depends on the “time of supply”, which is generally the earlier of:
When payment is received, or
When an invoice is issued.
So, invoicing can change the applicable VAT rate, even if the work or payment happens later. Let see how these principles apply with a few examples.
Basic principles
If a consultant sends a client an invoice on 30 April 2025 for work they will perform in May, VAT is charged at 15% (because the invoice is dated before the change).
But if the invoice is sent on 1 May 2025, the VAT is 15.5%, even if the work started before May.
Ongoing Projects Like Construction
Scenario: A builder agrees to build a wall for R100,000 (VAT-exclusive), and the payment terms are:
• 50% due upfront in March 2025
• 40% progress payment in April 2025
• 10% final payment upon completion in May 2025
How VAT Should Be Charged?
First Payment – 50% (R50,000)
This payment is received or invoiced in March 2025. Because it's before 1 May, the VAT rate that applies is 15%.Second Payment – 40% (R40,000)
This payment is made or invoiced in April 2025. Again, since this falls before the VAT increase, the rate remains 15%.Final Payment – 10% (R10,000)
The last portion is invoiced or paid in May 2025, which is after the VAT rate changes to 15.5%. Therefore, this portion must be charged at the new rate of 15.5%.
📌Note: If the May payment is invoiced in April, and that’s the first trigger (before the payment), then 15% would apply, not 15.5%. The VAT rate is tied to the first event—invoice or payment, whichever is earlier.
So, to summarise:
If payment or invoice is done before 1 May, charge 15%.
If both payment and invoice happen on or after 1 May, charge 15.5%.
If a single invoice or payment covers work before and after 1 May, you must split it fairly and charge each part at the correct rate.
Buying Residential Property
You buy a house in March 2025, but the payment and transfer only happen in May.
If the contract was signed before 1 May, you’ll still pay 15% VAT (as long as the price in the contract included VAT).
This special rule protects buyers from last-minute price hikes on big purchases.
Retail Shops and Pricing on Shelves
Stores are allowed to keep old price tags for a few months after 1 May, as long as they:
Put up a notice at the entrance and tills
Clearly tell customers that VAT has gone up and prices will be adjusted at checkout
For example, a loaf of bread shows a price of R115 on the shelf. At the till, it rings up as R115.50. The 50 cents is the extra 0.5% VAT.
VAT201 Returns When You Cross Over Into May
If your client’s VAT period includes both April and May, their return must show:
Sales and purchases in April at 15%
Sales and purchases in May at 15.5%
When you file a VAT 201 return for the period 1 April to 31 May 2025.
You’ll need to separate everything into two parts:
April's invoices: 15% VAT
May’s invoices: 15.5% VAT
SARS will update the VAT201 form to make this easier.
What If Someone Sends You an Invoice With the Wrong Rate?
What do you do if you get an invoice dated 5 May 2025, which still shows 15% VAT? You can only claim back the 15% that’s listed, not the full 15.5%.
You will have to ask the supplier to send a corrected invoice or a debit note to fix the mistake.
Imports: Which Rate Applies?
You import goods from China. The goods arrived in April, but Customs cleared them on 2 May 2025. You must pay 15.5% VAT on the import because the clearance happened after the new rate started.
What Does This Mean for Your Clients?
Many small businesses may face higher costs for goods and services, need to update their sales systems and will generally struggle with price adjustments on quotes, invoices, and contracts.
How You Can Assist Your Clients?
Update VAT rates in your clients' accounting systems
Check all ongoing contracts for clauses about VAT
Teach clients how to apply the right rate at the right time
Double-check VAT201 returns for both rates
Help SMEs display correct prices and notices
You can read more on in the SARS Pocket Guide on the VAT increase and the SARS FAQs Increase on the VAT change.
Final Thoughts
Even though the VAT increase is small—just 0.5%—it can cause confusion and extra admin if handled incorrectly. Your guidance lets your clients stay compliant and avoid penalties or underclaims.
The transition starts on 1 May 2025. Let’s help South Africa’s businesses prepare, adjust, and thrive.
📺 Learn more about the impact of the 2025 Budget with CIBA’s expert-led webinars!
Check out the CIBA webinars available on our Events Calendar!
Tax Happy Hour – VAT Update – 19 March 2025 (CIBA Channel 1)
Grab your coffee and join us for a relaxed, yet content-rich session offering a practical VAT refresher.
✨ We’ll cover:
🔧 Basic mechanics of VAT – a refresher for all levels
⚠️ Pitfalls and hidden opportunities in VAT management
🛠️ VAT modernization – where SARS is heading
📈 What happens if the VAT rate increases? Transition rules explained
🛡️ VAT risk management – reduce exposure and improve compliance
Tax Update Part 1 and Part 2 (CIBA Channel 2)
Presented in two power-packed, two-hour sessions, this essential CPD event dives into the most critical tax updates.
🔥 Key topics include:
📜 Latest tax legislation & case law affecting PIT, CIT, VAT & more
🕒 VAT input tax prescription – claim it before you lose it
🔄 Section 7C transfer pricing update – what’s new for connected persons
🌍 Section 6quat foreign tax rebate – especially on foreign capital gains
Don’t miss this opportunity to sharpen your tax knowledge and stay compliant in 2025 and beyond!
