Timely and accurate VAT return filing is a legal requirement for registered businesses in the UAE. However, navigating the complexities of VAT law can be challenging, and mistakes can lead to significant penalties from the Federal Tax Authority (FTA). Understanding these common pitfalls is the first step toward ensuring full compliance. Here are five common mistakes in VAT return filing and how you can avoid them.
One of the most frequent mistakes is the incorrect calculation of output tax (VAT charged on sales) and input tax (VAT paid on purchases). This can happen due to mathematical errors, applying the wrong VAT rate (e.g., 5% vs. 0%), or misclassifying supplies.
How to Avoid: Use a reliable accounting software that automates VAT calculations. Regularly reconcile your sales and purchase ledgers and double-check that the correct VAT rates are applied to all transactions.
Many businesses fail to recover all the input VAT they are entitled to. This often happens when expenses are not properly documented with valid tax invoices or when certain recoverable expenses (like specific entertainment or business-related costs) are overlooked.
How to Avoid: Maintain meticulous records of all purchases and ensure you have a valid tax invoice for every transaction. Understand the rules on what input tax is recoverable and implement a clear process for tracking and claiming it.
Missing the deadline for filing your VAT return can result in a penalty of AED 1,000 for the first offense, and this amount increases for repeated delays. Staying organized is key to avoiding these unnecessary costs.
The deadline for filing VAT returns and paying the due tax is the 28th day of the month following the end of the tax period. Missing this deadline is a common and costly mistake, leading to automatic penalties from the FTA.
How to Avoid: Set up a calendar with reminders for your VAT filing deadlines. Start the preparation process well in advance to allow ample time for review and submission. Engaging a tax agent can also ensure your filings are always on time.
Businesses sometimes make errors in reporting their sales, such as omitting cash sales, failing to account for goods used for private purposes, or incorrectly reporting sales to other GCC countries.
How to Avoid: Ensure your accounting system captures all revenue streams accurately. Reconcile your sales records with your bank statements and other financial documents before preparing your VAT return. Be clear on the specific VAT treatment for different types of supplies.
Underpinning all other mistakes is often a failure to maintain proper records. UAE VAT law requires businesses to keep financial records, including tax invoices, credit notes, and import/export documents, for at least five years. Inadequate records make accurate filing impossible and can lead to severe penalties during an FTA audit.
How to Avoid: Implement a robust and organized system for bookkeeping and document management from day one. Use digital tools and cloud accounting software to keep your records secure and easily accessible. Regular internal reviews of your records can help identify issues before they become major problems.
Avoiding these common mistakes requires diligence and expertise. At Hidaya Consultants, our team of tax professionals provides end-to-end VAT return filing services. We handle everything from data review and calculation to timely submission, ensuring your business remains fully compliant and penalty-free. Contact us today to learn how we can simplify your VAT obligations.
