A registered individual or business must regularly report to the appropriate tax authority using a form called a VAT Return, commonly referred to as a Tax Return. Occasionally, you may run into the term "VAT Error'' when filling out a VAT Return. When a taxpayer fails to correctly charge and account for the proper amount of output VAT (Value Added Tax) or fails to reclaim the appropriate amount of input tax, a VAT error arises.

This is true regardless of whether the person paid the Federal Tax Authority (FTA) an excessive amount of tax or insufficient tax. It is necessary to correct the tax amount that was reported to the FTA in either case. The FTA has established a form called Form 211 to correct any inaccuracies or omissions in the submitted VAT Return Form 201. Any errors or omissions in the previously submitted VAT Return may be corrected using this form.

It's critical to be aware that, excluding instances of tax evasion or failure to register, there is a five-year opportunity for correcting errors in prior VAT filings. The Federal Tax Authority (FTA) and a taxable firm have the option to voluntarily disclose errors to the FTA within five years of the end of the tax period in which they happened as of January 1, 2018, the implementation date of VAT.

In cases of tax evasion or non-registration, the FTA has the jurisdiction to collect taxes for a period of up to 15 years following the end of the tax period in which the tax evasion occurred or the date when the taxable enterprise should have been registered. The FTA also has the authority to issue fines when a taxable entity makes a tax error.

Types of VAT Errors in VAT Return

Errors in VAT returns can take many different forms, and the value of the error determines how it should be corrected:

1. Tax Value of AED 10,000 or Less:

  • It should be corrected directly on the tax return for the specific reporting period in which the error was identified if the error in the tax return causes a discrepancy of AED 10,000 or less.
  • A voluntary disclosure must be made to the Federal Tax Authority (FTA) in its place if the error is discovered at a later time when it cannot be corrected through an amended tax return (for example, if the taxable person is no longer registered for VAT).

2. Tax Value of Over 10,000 AED:

  • The FTA should be notified through a formal voluntary disclosure process if the tax return error costs more than AED 10,000.
  • The taxable individual must submit this voluntary notification to the FTA within 20 working days of learning about the error.
  • The disclosure must be made in the exact format required for this purpose by the FTA.

Tax Invoices

On tax invoices, errors can occasionally occur, especially in the following situations:

  • Incorrect Tax Charged: When tax is incorrectly applied to an invoice even though no tax was due on the delivered goods or services. 
  • It may also happen if the wrong amount of tax is charged.

Unless the error has already been corrected by providing a credit note, the supplier must record and include the tax amount listed on an invoice in their tax return when it is more than it should be. The seller must declare and account for the correct tax amount that should have been charged in their tax return if the tax amount on the invoice is higher than it should be.

In each case, the seller is required to fix the error with corrective measures. This usually entails issuing a credit note where the tax was initially charged incorrectly, or reissuing a corrected tax invoice when the tax was initially charged incorrectly. For instance, if VAT was levied on a zero-rated supply, the seller is required to give the client a credit note to reimburse the VAT that was wrongly charged. On the other hand, if VAT was omitted from a standard-rated supply, the seller needs to produce a new tax invoice with the correct VAT amount.

Customers who believe they have been taxed incorrectly or excessively should contact the supplier and ask for a credit note or a revised invoice that accurately represents the exact tax amount. This action is important because a recipient cannot claim input tax unless they have a legitimate tax invoice for the supply that accurately reflects the tax amount levied. This procedure makes sure that tax laws are followed and enables receivers to make the proper tax deductions.

Tax Refunds

Individuals or enterprises, even those not founded in a GCC Implementing State and not engaged in UAE business activities, must follow particular procedures for error rectification when submitting tax refund applications with the FTA. Regardless of the amount of the error, if one is found in the tax refund application, the person must submit a voluntary disclosure to the FTA within a strict 20-business-day window of time following the discovery of the error. For instance, it's crucial to submit a voluntary disclosure to the FTA right away if you discover a tax error during an internal audit.

However, the correct processes for rectifying errors in returns or assessments should be followed if the error in the tax refund application results from inaccuracies in a tax return or an incorrect tax assessment. Whether an error can be corrected on a subsequent VAT return or by submitting a voluntary disclosure depends on its type and size. This strategy complies with legal standards and ensures proper financial and tax reporting.

How BMS Can Help?

Every person who is liable to taxation is required to file their VAT Return as accurately as possible within the time frame mandated by UAE VAT Law, which calls for filing within 28 days following the end of each tax period. A taxable entity must make sure that the VAT Return Filing is processed correctly to reduce the necessity for using the VAT Voluntary Disclosure Form 211 to avoid penalties.

In the UAE, BMS Auditing promises to provide top-notch VAT return filing services. Our Tax Executives are ready to help you, including site visits to guarantee compliance and the compilation of your VAT Return. This will help to ensure that your VAT Returns are filed accurately and by the deadline. Feel free to reach out to us anytime for assistance.

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