Compliance
Compliance Spotlight: VAT-Exempt Schools and EMP501-TRN Rules in South Africa
Recent policy changes require schools to deregister VAT and employers to include valid IT Reference Numbers in EMP501 submissions—what institutions need to do now.
By NomadicTax Research Team • 5-8 min read • September 7, 2026
## VAT Changes for Schools: Deregistration & Exemption
- From **1 January 2026**, **all supplies** made by schools in South Africa are **VAT-exempt**, except where a school conducts ‘qualifying welfare activities’, which require a specific ruling. Schools must apply to cancel their VAT registration by using form **VAT123e** citing the reason “All enterprise activities have ceased on 31 December 2025”. ([sars.gov.za](https://www.sars.gov.za/whats-new-at-sars/3/?utm_source=openai))
- Schools that had charged VAT since the exemption date must still declare VAT on those supplies on their returns and may claim input tax for prior unclaimed input tax expenses incurred before 31 December 2025—provided they have supporting documents and make the claim by November 2026. ([sars.gov.za](https://www.sars.gov.za/types-of-tax/value-added-tax/schools-exiting-the-vat-system-frequently-asked-questions/?utm_source=openai))
## Employers & EMP501 Reconciliation: Mandatory TRN Enforcement
- As of the 202602 reconciliation period (year-end February 2026, annual EMP501 opens **1 April 2026**), EMP501 submissions **must include a valid Income Tax Reference Number** (ITRN) on every IRP5/IT3(a) certificate for employees who are required to register under Section 67 of the Income Tax Act. Submissions without valid ITRNs are rejected with hard rejection—no warnings. ([sars.gov.za](https://www.sars.gov.za/about/sars-tax-and-customs-system/budget/budget-2026-frequently-asked-questions/?utm_source=openai))
## Why These Changes Matter
- For schools: losing VAT vendor status means no VAT charging on supplies, but also no VAT input claims on supplies, unless they qualify via welfare rulings. Schools must adjust practices, contracts, billing, and accounting to reflect this. Failure to deregister could result in noncompliance.
- For employers: ITRN enforcement means payroll systems must collect and verify employee reference numbers before generating tax certificates. Missing or invalid numbers = rejection by SARS, causing delays and possible penalties.
## Practical Steps for Compliance
1. **Schools**
- Review all supplies and activities since 1 January 2026 to determine if welfare activities need rulings.
- Complete and submit **VAT123e** for deregistration where applicable.
- Review VAT returns and input tax claims for periods starting 2026, ensure correct treatment.
- Maintain documents for input tax claims for pre-2026 purchases until November 2026.
2. **Employers**
- Confirm that all employees expected to be registered under Section 67 have valid ITRNs via ITREG or BundleReg.
- Update payroll and HR systems to capture ITRN before generating IRP5/IT3(a) certificates.
- Use correct submission channel (eFiling or e@syFile) and correct reconciliation period for EMP501.
- Monitor rejection notices and correct missing or invalid ITRNs early.
## Case Example
- **School A** offered after-school programs and charged VAT on supplies since March 2026. It must stop charging VAT and apply for deregistration. It may claim previous input VAT pre-1 Jan 2026 if supported by documents.
- **Employer B** with 80 employees: several employees missing ITRNs in payroll system. Without valid ITRNs, its EMP501 for 1 April-31 May 2026 window is rejected—forcing rework and delaying ETI claims.
## Bottom Line
These are compliance imperatives, not optional. Schools must reassess VAT status; employers must clean up employee tax reference data. Failure to adjust will lead to administrative penalties, rejected returns, and unintended tax exposure.