Most Common Errors Committed while Filing VAT Returns

Most common errors made in filing VAT returns in UAE

Introduction

The FTA introduced VAT in the UAE on January 1, 2018. Businesses must comply with multiple requirements under the VAT Law. Filing VAT returns to the Federal Tax Authority (FTA) is crucial for all VAT registered businesses.

However, you must be careful not to commit errors while filing VAT returns. This article lists the most common errors companies make in filing their VAT returns, thereby impressing fines.


Common Mistakes that Businesses Make 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 the implications of VAT in the various sectors. Given the complexities in VAT-related transactions, they must have a plan to tackle the VAT laws.

This plan must talk about the accounting skills required in their accounting department. Their team must handle all the VAT compliance requirements. In some cases, they have hired the wrong bunch of people who, like the company, do not understand the complexities involved in understanding VAT implications.

To resolve this issue, they must hire a skillful, competent, and professional team of accountants and tax experts who understand VAT requirements and are proficient enough to handle the VAT return filing processes. Even a tiny error in VAT compliance processes may lead to high penalty amounts. Therefore, companies must have a well-made, robust accounting setup for handling VAT aspects.


Lack of maintenance of records

Most Common Errors Committed while Filing VAT Returns

Whether sales, purchases, or other transactions; every company must maintain accurate records.

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 regularly.

FTA has mandated businesses in the UAE to keep the records and all accounting details for at least five years for all industries except real estate for 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 requirements.


VAT Calculation Mistakes

The most crucial part of filing accurate VAT returns is the application of the correct VAT rates. However, businesses make mistakes in identifying the applicable VAT rate for goods and services, leading to more calculation errors, payment errors, and penalties.


Delay in or missing filing of VAT returns

The 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 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 remind themselves not to miss VAT return filings.


Errors in transactions covered under the reverse charge mechanism

Generally, businesses make errors in the transactions where the reverse charge mechanism applies. It is because of the import of goods and services. When businesses disclose the transactions in the VAT returns filing process, they forget to include transactions covered under the reverse charge mechanism. It also considers 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 adjust for bad debts or changes resulting from commercial property sales. However, businesses use the adjustment columns to correct the errors committed in previously filed VAT returns.

Using the adjustment columns leads to a change in numbers that might lead to further questioning & investigation by the FTA. Along with the detailed investigation, the FTA could also impose heavy penalties.

Therefore, businesses must be extra careful while understanding the purpose of each column of information that needs to be filled in the VAT returns form.


Conclusion

These are the most common errors businesses make while filing UAE VAT returns. We have just listed a few; there may be many more.

Examples of other errors are as follows:

  • Delay in registration leads to a delay in filing returns.
  • Failure to issue a valid tax invoice.
  • Using the wrong accounting software.
  • Incorrect input tax claims from blocked categories or linked to exempt supplies.
  • Adjustments to the 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 the export of goods, end-of-year adjustments to the recoverable tax, etc.

Due to these mistakes, the FTA might impose penalties, an unnecessary expense for any business. Therefore, you must exercise caution and adopt the best practices to file timely and accurate VAT returns.


What can VAT consultants in the UAE do for you?

You can hire VAT consultants or a consultancy firm to ensure an error-free VAT returns filing process. VAT consultants can help you in two ways. Firstly, they can train your employees to file VAT returns along with filing 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. It includes readiness for an unexpected FTA auditing process. However, the onus lies in selecting a vendor who has all the relevant knowledge of UAE VAT laws. They also have experience in handling VAT returns filing and other relevant activities.


Our strengths – VAT consulting services

NR Doshi & Partners is a 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, and calculation of VAT liability.

It also includes filing the VAT returns and accounting services for VAT. Our consultancy services for VAT make you and your business VAT ready. Hence you do not get confused and achieve full compliance with VAT requirements.


NR Doshi & Partners – your VAT returns filing partner that ensures accuracy and timeliness. 

Achieve UAE VAT compliance with NR Doshi & Partners as your guide. Know more.


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