If getting your head around keeping proper records and filing your VAT returns on time wasn’t enough of a headache, now you’ll need to get ready for the possibility of being audited.
Yes, friends, the authorities in KSA and the UAE are now ready to start auditing small and large businesses. If you’re paying VAT, you’re in the draw for a visit! How lucky is that?!
And why would they do that? Here’s why. In the UK during the 2016-17 tax year, HM Revenue and Customs department massively increased the number of audits they performed on small businesses and uncovered AED 17.4Bn of unpaid VAT.
Tax evasion is the third oldest business in the world.
We know that the biggest problems for businesses right now are getting their records straight and filing correct tax returns. Many small businesses don’t actually have records as such.
They kind of add up their invoices and deduct what receipts they can find and come up with a number – usually adjusted to account for a payment they made but cannot find the receipt.
And a lot of businesses think they only have to pay the VAT on invoices which have been paid. FAKE NEWS!! You pay VAT on the invoices you’ve sent out, regardless of whether you’re chasing payment or not.
Businesses will need to be able to completely justify all of their numbers, all of their data, all of their statements, all of their payments, all of their invoices, all of their record-keeping. Otherwise, they will face heavy fines.
If you don’t have adequate records you will be fined up to 50,000 AED and 50,000 SAR. There are fines for being late, fines for incorrect amounts, and hefty fines for not registering for VAT on time.
A lot of companies in 2018 struggled to be compliant for various reasons. Some waited too long, some did not expect the VAT system to be introduced. Other companies changed their processes to comply, but their work was let down by mistakes caused by not understanding how the VAT system works.
There was a steep learning curve to get it right due to the fact that tax is an unfamiliar area in the GCC. Authorities in the UAE and Saudi Arabia both provided taxpayers with leeway to help them get over the initial hiccups. But those days are over.
VAT management, record-keeping and compliance are still manual processes for an overwhelming majority of companies in the GCC. And most of the ways for improving these processes come with strings attached – like having to hire an accountant on a monthly basis, or paying a monthly fee to use an on0line accounting system.
But there are other cheaper alternatives which keep control in the hands of the companies of tax-payers themselves.
For example, excel accounting systems and excel systems for making accurate VAT returns which can be filed on time.
After all, you’re playing with their money!