Has VAT Filing Turned Into Another Accounting Formality?

Background

VAT was introduced in 2018. During the initial years, large and medium scale companies went through a diligent exercise of impact assessment, Vat implementation return filing with review by external consultants. Thanks to the Federal Tax Authority, the return filing process has been fairly simple with figures required to be filled in 10 boxes. As the years went by, the return filing process has turned into a routine period close formality in most organizations. But the moot question is whether return filing can be treated as a routine period close formality, or proper disciplines need to be exercised while doing the periodic VAT return filings.

We analyse below why due care should be taken for the routine VAT return filings.

Common Gaps in VAT Return Filing Process:

1. Tax Positions not updated: Since the in-house Accounting team has not kept its tax knowledge updated, it is not aware of the latest updates from the Federal Tax Authority.
2. Vendor Invoice Compliance: The bill-passing process doesn't always guarantee that vendor invoices comply with VAT regulations.
3. Exempt Supplies: In cases of exempt supplies, ensuring proportionate input VAT expenses (for common expenses) is often overlooked.
4. Ledger Based VAT Reporting: VAT figures are typically extracted from input and output ledgers in balance sheet accounts.
5. Reconciliation: Regular reconciliation between turnover as per trial balance and VAT output figures is not performed. Similarly, audited financial turnover are not reconciled with filed VAT returns.
6. Import Reconciliation: Import figures in the FTA VAT return should match those in financial records.
7. Out-of-Scope Transactions: Details of out of scope transactions are not maintained in the periodic VAT return records.
8. Zero-Rated Goods Documentation: Proper documentation for zero-rated goods is not always maintained.

Why Due Care for VAT Filing Matters:

• FTA Audits: The Federal Tax Authority (FTA) can audit businesses for up to 5 years after the period. Extensive details are required during these audits, including return workings, trial balance reconciliation, VAT treatment analysis, and policy/process documents.
• Penalties and Fines: Failure to provide necessary information and documentation can lead to penalties and fines across multiple years.

Recommended Approach:

1. Robust Filing Process: Ensure accuracy, completeness, and documentation during VAT return filing.
2. Reconciliations: Conduct regular reconciliations to verify the accuracy of filing.
3. Document Maintenance: Keep records traceable for the entire 5-year statute of limitations.
4. Third-Party Reviews: Periodic reviews by external experts enhance VAT compliance robustness.

Remember, meticulous VAT compliance safeguards your business and prevents costly penalties. If you need assistance with health checks, periodic VAT return filings, or transaction advisory, we're here to help

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.