Perform Pre-audit health check & assess VAT Penalty

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Perform Pre-audit health check & assess VAT Penalty

The FTA has been informing companies that they will be audited five working days after the date of the email sent to them for the year Jan 1st to April 30th, 2018, and May 1st to July 31st, 2018 tax periods.

Businesses must get ready and ensure that their legitimate expenses, appropriate documents, revenue are all in place and accounted for. Due tax need to be calculated and paid periodically.

VAT Payments and heavy penalties that heavily affect the business’s cash flow statements can be unpleasant for small businesses. They will suffer if they don’t set aside enough funds for their payments.

Audit can be intimidating for anyone who isn’t prepared for it. The FTA will usually notify the auditee in advance, that is, 5 business days. Although, in certain cases like Suspected Tax Evasion or if there is a reason to not notify as it may deter the audit process, the notice will not be given.

The tax audit will be conducted at the business’s place or the FTA’s office. The audit is typically done in FTA’s business hours. The tax auditor in charge of performing the audit should be given the required assistance from the auditee’s side, which may be their tax agent or legal representative.

The following are the conditions that the taxable company must comply to on receiving the tax audit notice;

  1. The audit grounds need to be accessible.
  2. Pertinent records of tax, invoices, books of accounts etc. are accessible.
  3. Pertinent staff should be available.
  4. Original copies of the documents should be present.
  5. The Audit FAF File for Auditors need to be generated.

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It is the business’s responsibility to generate Audit file in FTA designed FAF file format and respond to the FTA quickly. The business’s VAT accounting software need to capable of doing so.

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Once the audit is completed, the FTA will communicate the results to the auditee. If the audit’s results point to any of the following cases, then tax assessment will be issued.

  • Failure to apply for registration within the time frame specified by the VAT law.
  • Failure to submit a tax return within the time fame specified by the Vat Law.
  • Failure to settle the payable tax stated as such on the VAT return that was submitted within the time limit specified by the Tax Law.
  • Submitting an incorrect VAT return.
  • The registrant failing to account for Tax on behalf of another person when he is obligated to do so under the Tax Law.
  • The shortfall in VAT payable as a result of tax evasion.

According to the Cabinet Resolution No. (40) of 2017 on Administrative Penalties for violations of Tax Laws in the UAE, In the event of failure to provide the required records or assistance for tax audit conduct, applicable penalties may be levied on the tax payer.

How to prepare for an audit check:

  • Check the timely submission of VAT returns and ensure that you have performed the reconciliation when accounting for the input and output VAT.
  • Gather all original documents like income and expenses labelled and organized by tax year.
  • All relevant documents should be reconciled with bank records and available to the auditor.
  • Tax Invoice requirements need to be met as the payments made should be based on an original invoice marked ‘Invoice’ and supplier VAT registration Number is mentioned on the invoice.
  • Ensure that the goods/services qualify as taxable supply and VAT is properly calculated.
  • Ensure that the Sales Order Processing system is automatically generating correct VAT values by reference to the customer or type of goods or service, country and designated zones as per VAT Law.
  • Check VAT calculation under Capital Asset Scheme for acquisition and disposal of capital assets and/or improve transactions processed during the period.
  • Ensure the accuracy of your VAT calculations on Entertainment and Business expenses.

If all the above considerations have been met, the smoother the audit process is for the auditor.

If you are charged with a penalty and don’t agree with the decision, stay patient as you can file for an appeal.

VAT Experts at Executive Business Solutions are committed to providing the best VAT Advisory Service in the UAE to clients in compliance with the rules and regulations of VAT in the UAE having their international experience in Taxation.

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