Why VAT Reconciliation with Books of Accounts is Important

Objective: 

To ensure that VAT records are consistent with Financial Records, thereby avoiding penalties from the Federal Tax Authority (FTA).

 

Why It is Required:

1. Inconsistent Data: Inconsistent data provided by the client during VAT return filing and accounting can lead to discrepancies.
2. Overlooked Transactions: Transactions from bank statements are often overlooked when filing VAT returns, resulting in incomplete records.
3. Knowledge Gaps: Lack of knowledge by the individuals responsible for filing can cause errors in VAT returns.

 

Challenges:

1. Differing Financial Years: The VAT financial year may differ from the accounting financial year, complicating reconciliation efforts.
2. Lack of Detailed Breakdown: The returns filed with the FTA may not provide a detailed month-wise breakdown, making it difficult to match transactions.
3. Revenue Discrepancies: Financial revenue figures may not align with VAT revenue figures due to timing differences or classification issues.

 

Steps to be Taken During Reconciliation:

1. Sales:

   Reconcile sales turnover in VAT returns (as indicated in Box 1, 4, and 5 amount columns) with the corresponding revenue ledgers in the books of accounts. This includes:

•    Standard Rated Sales
•    Zero Rated Sales
•    Exempted Sales
•    Out of Scope Sales

 

2. Output VAT:

   Reconcile the Output VAT ledger in the books of accounts with the output value mentioned in Box 1, 4, and 5 VAT amount columns.

 

3. Expenses:

   Reconcile Standard Rated Expenses in Box 9 amount column with the relevant expense values in the books of accounts.

 

4. Input VAT:

   Reconcile the Input VAT ledger with the recoverable VAT amount column mentioned in Box 9.

 

Additional Considerations Specific to UAE VAT Provisions:

1. VAT Return Filing Frequency:

   In the UAE, VAT returns are typically filed quarterly or monthly, depending on the annual turnover of the business. Ensure that the frequency of your financial reconciliations matches your filing schedule.

 

2. Designated Zones:

   Transactions involving designated zones, which are treated as being outside the UAE for VAT purposes, must be carefully reviewed to ensure correct treatment in both VAT returns and financial records.

 

3. Reverse Charge Mechanism:

   Ensure that transactions subject to the reverse charge mechanism are correctly accounted for. This includes verifying that imported goods and services have been accurately reported and that the VAT is accounted for appropriately.

 

4. VAT Adjustments:

   Any VAT adjustments, such as those for bad debts, discounts, or refunds, must be reconciled to ensure they are correctly reflected in both the VAT returns and the books of accounts.

 

Illustrative templates are attached here for reference. Click here to Download UAE VAT Reconciliation with Book of Accounts_Template or Find below.

 

For Sales & Output:

 

For Expenses & Input:

 

Disclaimer: The VAT reconciliation blog provided above is intended for reference purposes only. It does not imply legality or official endorsement. Spectrum assumes no responsibility for any legal implications arising from the use of the information provided.

 

 

Why Spectrum Auditing?

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Spectrum Auditing guides you with the laws and regulations of UAE, covering most compliances applicable as well as enable you deal with any queries pertaining to Risk Advisory, Economic Substance Regulations (ESR),  Corporate Tax (CT), Transfer Pricing (TP), Ultimate Beneficiary Owner (UBO), Anti Money Laundering (AML), etc., after reviewing your business. We specialize in conducting audits adhering to International Standards on Auditing (ISA), International Accounting Standards (IAS) and International Financial Reporting Standards (IFRS).

 

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