The mistake means a Dh1,000 fee plus interest is owed to the Federal Tax Authority
VAT q&a: I paid on time, but forgot to file my return. Can I avoid late fees?
I made my first VAT payment through UAE Exchange by the payment deadline but made a mistake and didn’t submit the return. I’ve now been charged a late filing fee of Dh1,000 and when I did submit the return I was also charged interest on top of it. Is there anything I can do to waive these fees since I had actually paid the full amount before the payment due date?
VS, Abu Dhabi
The quarterly VAT return process has two parts. First, you must complete and submit the VAT return online in the Federal Tax Authority’s Portal and secondly make the required VAT payment, which can be done through various channels, including e-dirham, visa or debit cards, bank transfer or through UAE Exchange.
Many people have experienced the same issue as you and are unpleasantly surprised when they eventually file the return and suddenly the Dh1,000 late filing fee they were expecting suddenly jumps up and includes interest payments.
The FTA legislation explains that making a payment is not recognised until the corresponding VAT return has been filed. Therefore, despite making the payment in full and the funds reflected on your FTA account, the FTA don’t recognise that payment against your missing VAT return. Once you file the return the system will automatically calculate interest from the day the return was due up until the day you filed the return. Until you file the return the system doesn’t know how much VAT you owed and therefore the interest penalties are not reflected in your liability until the return is filed.
The interest penalty is calculated as a percentage of your VAT payable. Two per cent is charged immediately, another four per cent is added a week after the payment deadline, and then one per cent per day on amounts not paid a month after the due date. For example, if you make payment a month late you will be charged a six per cent penalty but if it goes on for another month that penalty will rise to 37 per cent.
In terms of waiving the fees, I would first make the payment in full then contact the FTA to see if they will consider removing the fines. The FTA are under no obligation to waive the penalties, but I have heard some people have successfully managed to get the interest waived where they had made the payment on time. If this is indeed happening, then I expect it to be applied for a short time only whilst the new VAT regime beds in.
A customer has overpaid against our invoices and transferred too much money into our bank account. They are now requesting that we issue them with a credit note with VAT so they can process the refund in their accounting system. What is the correct VAT treatment for this credit note?
Your customer is incorrect in asking you to issue a credit note at all to support the return of the funds. When you raise a credit note you would typically debit (reduce) your income and credit their debtor account, which would reduce the amount they owe you or create a liability if they didn’t have outstanding invoices at the time.
When you receive the overpayment, you should record the cash and a liability in their debtor account, but you should not have recorded any VAT as part of this overpayment. When you return the funds you just reverse the previous entry, again without any VAT. You should already be showing a liability to them in their debtor account reflecting the overpayment, so if you issue a credit note you will be creating a further duplicate liability to them which doesn’t exist. I suggest you ask for their bank details and just return the funds to them. Your accounting entries would be to credit cash and debit the debtor account.
Am I allowed to claim input VAT on receipts from stores which do not show my company name or TRN number?
In short, yes you can. The expenditure must, of course, be business-related and not specifically excluded in the FTA guidance (like entertaining clients, for example). But as long as the amount spent on an individual transaction is less than Dh10,000, then you may reclaim the VAT even though the invoice does not show your company details or TRN.
If you are spending over Dh10,000 in a store that typically issues simplified invoices, then you must request a proper VAT invoice in order to claim the VAT back. You shouldn’t use a simplified invoice to reclaim VAT on an invoice over Dh10,000. If you were subject to a tax audit you may find this input VAT is denied by the FTA. To be sure, I would confirm that the store is able to issue full tax invoices before you make the purchase.
Lisa Martin, a chartered accountant with more than 20 years commercial finance experience, is the founder of accounting, auditing and VAT consultancy, The Counting House. Email any VAT queries to firstname.lastname@example.org