CA
When a business buys or sell on credit or receives or pays advance payment, special rules come into play, which are often ignore due to lack of knowledge.
Small and medium business owners are generally focused on generating sales and delivering the services and may not always be aware of the latest VAT requirements. We have observed that business often makes the below common mistakes when it comes to VAT filing.
1. Late Filing of VAT Returns
It is important to meet deadlines when it comes to VAT return. The VAT needs to be filed by the 19th day of the month following the end of each taxable period. The FTA has developed quarterly and monthly deadlines to ensure that VAT returns are filed on time. Business often makes mistakes in the calculations when done in a rush to meet the deadlines. It is critical for businesses to stay on top of these deadlines and complete the tax returns filing process well ahead of prescribed time, to avoid any last-minute rush that may result in errors in calculations or omissions.
2. Inadequate Record Keeping
Under VAT regulations in United Arab Emirates, business needs to maintain documentation of their transactions which includes, all payments, receipts, expenditures, and other documentation for a period of 5 years and 15 years for real estate businesses. A lot of business owners due to their day to day activity are not able to retain all of these accounts, or if they do, they are not up to date.
3. Incorrect Tax Period.
A business ensure that transactions falling within the specific tax period are included on the appropriate return during the tax period.
4. Errors in Calculating Vat
The most important aspect of preparing accurate VAT returns is using the correct VAT rates. When it comes to determining the appropriate VAT rate for the goods and services they provide, business owners sometimes makes mistakes. As a result, calculations and pay-outs will be inaccurate and may potentially result in fines. This is particularly truy for business who sell taxable as well as zero rate supplies, such as greocery stores.
5. Reporting transactions under Reverse Charge Mechanism
In transactions involving reverse charge mechanisms, inaccuracies are common. This is due to the fact that goods and services are imported from other countries. Businesses frequently fail to include transactions covered by the reverse charge mechanism in the VAT returns they file. Nonetheless, because these transactions must pass through customs as part of the existing procedure, they are included in the business’s VAT returns. As a result, businesses should exercise reasonable caution when reporting such transactions and pursue professional guidance.
6. Incorrect Usage of Adjustment columns
Businesses sometimes don’t focus on how to use adjustment columns while filing VAT returns. In the VAT return format of FTA adjustment columns are available. In fact, the adjustment columns are used for bad debts and sales of commercial property adjustment but the businesses use the adjustment columns to correct the previous year VAT returns errors due to which business may face penalties by the FTA. Each adjustment column needs to be filled with an attention to comply with VAT laws.
7. Relief for Bad Debts
According to article 64 of the Federal Decree-Law No. 8 of 2017 on Value Added Tax, FTA provides relief for bad debts. You must wait six months from the date of supply before claiming bad debts. Adjustment in your input VAT is required as per the tax authority. If you pay creditors late, VAT cannot be claimed on those outstanding invoices. the basis of accurate VAT filing is a robust bookkeeping system. If business owners are not comfortable doing it on their own or want ro focus on their business, they must seek for professional help.
8. Help from Tax Professional
Businesses that want to take advantage of VAT laws should engage tax professionals to manage VAT-related transaction records. Compliance with VAT regulations requires a competent team of employees. Sometimes, inability to engage with experienced tax consultant may lead to inaccurate submissions.
For tax returns and consultancy, contact finnection via email at info@finnection.ae or call us at our toll free number +971 800 0120070
Disclaimer: Above information is subject to change and represent the views of the author. It is shared for educational purposes only. Readers are advised to use their own judgement and seek specific professional advice before making any decision. Finnection is not liable for any actions taken by reader based on the information shared in this article. You may consult with us before using this information for any purpose.