Since January 1, 2018, when VAT was introduced in UAE, businesses are required to comply with multiple requirements under the VAT Law. Filing VAT returns to the Federal Tax Authority (FTA) is an important activity for all businesses that are registered for VAT. However, you need to be extra careful while filing VAT returns since some common mistakes generally occur in this process.
In this article, we give you a list of the most common errors companies make in filing their VAT returns, thereby resulting in the imposition of fines.
Common mistakes made by businesses while filing VAT returns
The most common errors that businesses make in filing VAT returns in UAE are as follows:
Absence of a proper planning strategy for VAT compliance
VAT is a new law in UAE. It is difficult for businesses to understand the processes of compliance and implications of VAT in the various sectors of their business. With little to no idea of the complexities involved in VAT-related transactions, they must have a proper plan in place to tackle the VAT laws and regulations. This plan must talk about the accounting skills required in their accounting department and team to handle all the VAT compliance requirements. In some cases, they have hired a wrong bunch of people who, like the company, do not understand the complexities involved in the understanding of VAT implications.
To resolve this issue, they must hire a skilful, competent, and professional team of accountants and tax experts who have a deep understanding of VAT requirements and are proficient enough to handle the VAT return filing processes. Even a small error in any of the VAT compliance processes may lead to high penalty amounts. Therefore, companies must have a well-made, strong accounting setup for handling VAT aspects.
Lack of maintenance of records
Any company in any country is required to maintain records of every accounting transaction, be it any purchase or sale transaction. Even the UAE VAT laws require you to maintain records of all your transactions such as payments, receipts, expenditures, sales invoices, inventory records, records of imports and exports, purchase and sales revenues, credit and debit notes, general ledgers, VAT ledgers, accounts of salaries and other benefits, and many other accounts. However, companies forget to keep a record of all these accounts, or even if they start, they fail to maintain and update them on a regular basis.
FTA has mandated businesses in UAE to keep the records and all accounting details for at least five years for all industries except real estate, for which it is 15 years. Therefore, businesses must take this mandatory requirement seriously and hire a dedicated accounting team or outsource to a VAT consultant the record-keeping exercise to ensure compliance with FTA’s requirement.
Mistakes in the calculation of VAT
The most important part of filing accurate VAT returns is the application of the correct VAT rates. However, businesses make mistakes in identifying the relevant rate of VAT for the goods and services, thereby leading to bigger errors in calculations and payments, which may lead to penalties.
Delay in or missing filing of VAT returns
There are deadlines for filing VAT returns in UAE. FTA has defined the deadlines for the quarterly and monthly VAT returns filing process. Businesses must remain up-to-date with these deadlines and finish off their returns filing process before the due date to avoid any last-minute hurry that may lead to errors in calculations or omissions. Furthermore, they must ensure to remind themselves of not missing filing any VAT returns.
Errors in transactions covered under reverse charge mechanism
Generally, businesses make errors in the transactions where the reverse charge mechanism applies because of the import of goods and services. When businesses have to disclose the transactions in the VAT returns filing process, they tend to forget the inclusion of transactions covered under the reverse charge mechanism, considering that there are no VAT charges on those. However, these transactions are reflected in a business’s VAT returns because of the existing procedure of going through customs. Therefore, businesses must be extra careful in reporting such transactions and seek expert help.
Error in the usage of adjustment columns
Businesses do not understand the actual usage of adjustment columns in the VAT returns filing process. The actual purpose of providing an adjustment column is to provide the adjustment for bad debts or changes resulting from sales of commercial property. However, businesses tend to use the adjustment columns for correcting errors made in previous VAT returns filed. This leads to a change in the numbers, which might lead to further questioning and investigation from the FTA and/or penalties. Therefore, businesses must be extra vigilant regarding understanding the purpose of each column of information required to be filled in the VAT returns form.
These are the most common errors that businesses make while filing UAE VAT returns. There might be other mistakes such as delay in registration leading to delay in filing returns, failure to issue a valid tax invoice, use of wrong accounting software, incorrect claiming input tax from blocked categories or linked to exempt supplies, adjustments to value of goods/VAT rate imposed for auto-populated details of import of goods, lack of satisfactory evidence to support Zero-rated supplies especially for export of goods, end-of-year adjustments to the recoverable tax, etc. These mistakes lead to penalties from the FTA, which is an added expense for businesses. Therefore, you must be wary of these mistakes and adopt the best practices to file timely and accurate VAT returns.
How VAT consultants in UAE can help?
To avoid these mistakes and ensure an error-free VAT returns filing process, you can hire VAT consultants or a VAT consultancy firm. VAT consultants can help you in two ways. Firstly, they can train your employees to file VAT returns, and secondly, they can file the VAT returns on your behalf.
In addition, with consultants’ assistance, you will always be prepared for any sudden updates or changes in FTA rules, including readiness for an unexpected FTA auditing process. However, the onus lies on you to select a vendor who has all the relevant knowledge of UAE VAT laws and has experience in handling VAT returns filing and other relevant activities.
Our strengths – VAT consulting services
NR Doshi & Partners is one such VAT consulting services provider that can help businesses with all the VAT-related compliance requirements. We have tax experts and professional accountants who can help you with VAT registration, deregistration, calculation of VAT liability, file the VAT returns, and accounting services for VAT. Our consultancy services for VAT make you and your business VAT ready so that you do not get confused in any matter and achieve full compliance with VAT requirements.