VAT Errors and ways to Rectify them

Harish Elimban, Manager

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When a person fails to charge and account for the correct amount of output VAT or does not recover the correct amount of input tax, it is considered as an error. This is applicable even if the taxpayer has overpaid or under-paid the amount to FTA.

How to correct an error in tax invoice and treatment in tax return?

If the tax amount on the invoice exceeds the correct amount, then the supplier must include the tax amount stated on the invoice within its tax return. If the error has been corrected by issuing a credit note, this is not applicable.
Cases wherein the amount on the invoice is on the lower side, the supplier should account for the correct amount of tax on its tax return.

Even if the tax originally charged was high or low, the error must be corrected by the supplier. If the tax charged is high, then a credit note must be issued and if the tax charged is lesser than the correct amount, a tax invoice with the correction must be issued.

For example, if a supplier charges VAT on a zero-rated supply, then a credit note for the VAT the customer has paid must be issued to him. If VAT has not been charged on a standard rated supply by mistake, the tax-invoice with the correct VAT amount must be issued.

What should a recipient of tax invoice with error do?

The recipient must contact the supplier and request a credit note or an invoice, with the correct amount of tax stated in it. For a recipient to recover input tax, a valid tax invoice for the supply, showing the correct amount of tax charged is mandatory.

What is the recourse that should be adopted if there is an error in FTA assessment?

If the assessment issued by the FTA contains an error, it is considered as a tax error and should be corrected in the same manner as an error made by the taxable person. It is the value of the error that determines the way of correction.

The error should either be corrected in the tax return for the period in which it was discovered, or a voluntary disclosure should be submitted.

When is Voluntary disclosure required?

  1. If the error is discovered at a time when it cannot be corrected in the tax return, then a voluntary disclosure should be submitted to FTA (for example if the taxable person is no longer registered) or
  2. If the tax value of the error is more than AED 10,000, a voluntary disclosure is mandatory.

When the taxable person notices an error, he/ she should submit the disclosure within 20 business days.

What is the time limit the FTA has for assessments or by when can a taxable person disclose errors to FTA?

Errors can be corrected within a time period of 5 years. The FTA can raise an assessment for, or a taxable person can report any error that occurred within 5 years from the end of the tax period in which the error occurred, to the FTA.

This is not applicable in the case of tax evasion or non-registration. In these cases, the FTA can conduct a tax assessment up to 15 years from the end of the tax period in which the tax evasion occurred or from the date on which the taxable person should have been registered.

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