I have a scrap sale and purchase business, for example I buy and sell used AC units. In 2018 I had sales of less than Dh100,000. I only applied for voluntary registration when VAT was introduced as everyone else was applying for a tax registration number. I have submitted my second return but have not paid the VAT due. The Federal Tax Authority imposed a daily fine of 1 per cent on the unpaid amount. I then submitted my third return but have not paid the VAT due and the forth and fifth returns were submitted late. I was fined Dh1,000 on the first late return and Dh2,000 on the second. I now have total fines and penalties of Dh3,000 for late submission in addition to Dh3,598 for non payment of VAT. However, my sales are less than Dh180,000 a year. Can I apply for these fines to be waived on the basis that my sales have always been below Dh180,000? Or can they be offset against future VAT refund for the next quarter? ZM Dubai
This questions highlights how a couple of mistakes in a taxpayer's registration, filing or payment can quickly result in substantial fines. When VAT registration opened in December 2017, many small business owners thought they had to apply regardless of the size of their business. Others wanted to register, despite knowing they were under the mandatory or even voluntary registration thresholds, often fuelled by larger companies not wanting to deal with non-VAT registered businesses.
The FTA was inundated with initial registrations and many companies below the voluntary threshold were registered. The FTA has since introduced more robust checks to reject small businesses that don’t meet the turnover thresholds. Once registered for VAT, a business' turnover becomes irrelevant and you must file returns and pay VAT within the FTA’s deadlines or you will be automatically fined for late returns and non payment.
Companies whose turnover is below the voluntary VAT registration threshold must de-register within 20 days of falling below the threshold. This became effective in 2019, as companies who voluntarily registered could not apply for deregistration within the first 12 months. If your business turnover remains below the voluntary threshold you should begin the deregistration process immediately. Depending on what information the FTA requires before they approve your deregistration you may be subject to a further fine of Dh10,000 for late mandatory deregistration. You are required to clear all amounts owing to the FTA before deregistering.
In terms of the existing fines of Dh6,598, you could file what is known as a reconsideration form and ask the FTA if they will waive the fines, although I cannot see on what basis they would do this. However it is always worth a try and they can only say no. The form can be found on the FTA portal under E Forms and can only be submitted in Arabic.
If in future filings you have a VAT refundable position, your fines and penalties would automatically be offset by the FTA against this credit. However, you can only do this if your business has grown and is now above the voluntary threshold, and you are not required to mandatorily deregister. If you continue to operate with turnover below Dh180,000 de-registering now should be your priority.
It is always important to take professional advice before registering for VAT. VAT compliance is onerous and an additional cost to small businesses, often outweighing the benefits of being registered.
By mistake I did not add VAT to some sales invoices in my last return. What should I do? AA Abu Dhabi
As long as the omission resulted in underpaid VAT of less than Dh10,000, you can just include the invoices in your next return, effectively catching up on your payable tax. You can only do this if your missed invoices total less than Dh210,000.
If the missed invoices total more than this amount, then you need to submit a voluntary disclosure to the FTA and pay the under reported VAT separately from the usual return process. To do this logon to the FTA site, find the filed return with the error and then use the Voluntary Disclosure button to the right of the return. Unfortunately, this will result in an immediate penalty of Dh3,000 plus 5 per cent of the additional tax due. If the FTA advises you of an audit or find the error as part of an audit these fines rise to either 30 per cent or 50 per cent on top of the fixed penalty.
Lisa Martin, a chartered accountant with more than 20 years of commercial finance experience, is the founder of accounting, auditing and VAT consultancy, The Counting House. Email any VAT queries to email@example.com