To help ensure you perform VAT processes right, let us take a close look at the common mistakes VAT-registered businesses in UAE commit that you most definitely avoid. Let’s get right into it!
Lack of Sufficient Evidence in Support VAT Reclaims
When claiming VAT back, the general rule you need to remember is this: without a VAT receipt, you can’t make a reclaim!
Even where you’ve kept the VAT receipt, you need to make sure an item that is in the receipt carries VAT. Also, in order for you not to lose money, you need to retain a regulated VAT specialist to keep receipts and maintain records of reclaimable VAT. The receipts will be stored in books of accounts by the professional.
Claiming VAT on Expenses that Weren’t for the Business
When you have incurred expenses e.g. broadband for your residential property (partly a personal and business expense), we often find VAT was claimed with the full amount rather than applying a restriction as to the non-business or personal element of the expenditure.
Incorrectly Claiming VAT on Fuel or Motor Vehicle
A common error VAT-registered businesses make is claiming VAT on motor vehicles that are for private use. You can only claim back VAT if the vehicle is used for business purposes exclusively and won’t be available for the private use of any employee.
Another classic mistake businesses make is claiming fuel at its full cost where the vehicle is used for private and business purposes alike.
Claiming back Tax Paid on Entertainment
Although for some business sectors the entertainment of clients is justifiable in claiming VAT back, tax on these expenditures is typically blocked and can’t be claimed.
During the VAT inquiry carried out by the Federal Tax Authority, this is one area the tax authority will check on the list.
Not Claiming VAT Charges paid for Staff Entertainment
Here is an irregularity on what we said earlier that Value Added Tax can’t be claimed on entertainment. If staff is entertained, including the administration and managers of the company, claim back VAT on the expense if the expense or kind of entertainment carries VAT.
Not Seeking the Help of VAT Experts
Experts, known as regulated tax agents in UAE, takes away the burden of businesses and saves time when performing mandatory VAT-related processes. For owners of small businesses, there is the idea that it’s best to do everything themselves in order to cut costs.
The danger in relying too much on ourselves, especially if we are not knowledgeable and experienced on crucial VAT processes, we may fail to do basic checks and commit errors. There may be wrong items that you try to claim VAT on or you encode expenses to a wrong account. You may also have duplicated certain transactions. All these and more lead to hefty fines and penalties from the Federal Tax Authority.
This can cover several different mistakes but the most common the Federal Tax Authority tends to check for fall in the category, transactions. For instance: has the business’ entertainment expense been classic as expenses for marketing and VAT is claimed? Has input tax been claimed for expenses that don’t carry VAT? Has input tax included for VAT reclaim for costs that are incurred outside of UAE (e.g. meals and business trip accommodation)? Have self-billed invoices for sales on which tax is due posted as invoices for purchases?
Make sure that your accounts and bookkeeping processes are accurate and properly implemented in order to minimize the change of you making an error.
Ignoring VAT Notices and Demands from the FTA
Remember that the tax authority requires accuracy when it comes to reporting and you are legally entitled to supply accurate information. Ignoring the notices and demands of FTA can be very expensive for your business.
For instance, if the FTA sends you an estimate or assessment and you fail in sending the right VAT return on time, you can be penalized.
In the United Arab Emirates, it is best to seek the help of a regulated tax agent or accountant in helping you with all VAT-related matters. Consider getting VAT specialists in giving you expert option or planning advisory on complex and major issues that are related to business properties, imports, as well as the common risk areas.
Even if your business affairs are seemingly simple and you have time in doing research and performing VAT processes, you need to be on top of updates from the FTA. A VAT specialist that is from the firm has years of experience in the field. This means you will receive help in making sure your business is fully compliant with all applicable taxation legislation in the country.
If you have questions or concerns on VAT in UAE, don’t hesitate to give us a call. You can book a free, no-obligation initial consultation today!