Top 10 Mistakes Businesses Make When Filing VAT Returns and Tips to Avoid Them

Value Added Tax (VAT) was introduced in UAE in January 2018. It is essential for every business to responsibly follow the rules that are made by the Federal Tax Authority for VAT registration, filing, reporting, and record keeping. The rate of VAT in UAE is only 5%, and your VAT filing period could be monthly or quarterly. Refer to your TRN Certificate to know about your return period. 

VAT compliance requires accurate bookkeeping, a clear understanding of how input and output VAT work and staying up to date with the latest FTA rules. Businesses normally make mistakes due to staff changes, system issues, or failure to comply with new regulations. From our experience, here are the 10 most common VAT filing mistakes companies make and tips to avoid them efficiently. 

Note: The obvious primary step is to ensure your business is registered for VAT, if applicable. If you have not yet reached threshold for mandatory VAT registration or voluntary VAT registration. but you expect to reach that threshold soon, start preparing your documents for registration. 

1) Late VAT Return Submission

Businesses registered for VAT in the UAE must file their returns within 28 days after the end of each tax period. Missing this deadline leads to automatic fines, even if the VAT payment has been made.

How to Avoid It: There is a solution for every problem. If the intention is just to prevent a late VAT filing, it would be advisable that businesses set reminders as well as assign this important task to someone who is trained enough to manage it flawlessly. To be on the safe side, submitting the VAT return some days before the due date is the best option, because in case you face a problem with the portal or payment, it can be resolved.

2) Incorrect Input and Output VAT Calculations

Inaccurate tax calculation is the most repetitive VAT mistake made by companies in United Arab Emirates. In many cases, companies mistakenly apply VAT on the total invoice value, including VAT, instead of calculating it only on the taxable amount. Whereas others may misclassify transactions or overlook exemptions. These small errors can cause major problems, like overpayment, underpayment, or even getting fined by the FTA.

How to Avoid It: Businesses should always calculate VAT only on the taxable amount, not on the total after VAT is added. Using FTA-approved accounting software helps avoid mistakes. Businesses should verify all invoices carefully, use reliable accounting systems, and ensure that the staff responsible for VAT is properly trained on how to apply the 5% rate correctly.

3) Non-FTA-Compliant Tax Invoices

It is a requirement by the FTA for all VAT-registered businesses to follow the rules specified in Article 59 of the Executive Regulations. If the key details like the supplier’s TRN, date, VAT amount, or invoice number are missing from the given invoice, then it becomes invalid and it can’t be used to claim input VAT.

How to Avoid It: Every tax invoice must include all required details, such as information about both supplier and buyer, TRN, invoice number, date, VAT rate, and total amount. It is better to use automated invoicing systems that are approved by FTA as these systems help avoid serious mistakes.

4) Claiming VAT on Non-Recoverable Expenses

UAE VAT laws are strict, as business owners are not eligible for VAT recovery for some defined expenses. In simple terms, it means companies can’t claim back the VAT they have paid on certain costs. These are called blocked expenses, and they usually cover things like entertainment, staff benefits, gifts, or any spending that is not directly linked to business operations.

How to Avoid It: Businesses should review their expense policies and claim VAT only on purchases directly related to their business activities. They should also check the FTA’s latest list of blocked expenses and keep proper records and invoices for all VAT claims. This helps ensure accuracy and protects the business during audits.

5) Ignoring the Reverse Charge Mechanism (RCM)

The Reverse Charge Mechanism applies when importing goods or services from outside the UAE. Instead of the supplier charging VAT, the buyer must account for both the output and input VAT in the same return. Failure to record RCM entries results in underreported VAT and potential non-compliance with Article 48 of the UAE VAT Law.

How to Avoid It: Businesses should carefully check which imported goods and services fall under the reverse charge rule and make sure they are recorded correctly in their VAT return. If you keep clear records of all imports and match them with customs documents, the mistakes will be minimized.

6) Reporting Transactions in the Wrong Tax Period

Each transaction must be reported in the VAT period in which it occurs. Recording transactions in the wrong period can create discrepancies between financial statements and VAT filings, prompting inquiries from the FTA.

How to Avoid It: To prevent this, businesses should reconcile their accounts monthly and verify that transaction dates correspond with the correct VAT reporting period. Implementing a proper month-end closing process ensures that invoices, credit notes, and receipts are correctly aligned with their respective tax periods.

7) Not Reconciling Books with VAT Returns

Submitting VAT returns without reconciling them with accounting records is a major cause of FTA audits. Any inconsistency between financial statements and VAT returns can raise compliance concerns.

How to Avoid It: Before submitting a VAT return, businesses should double-check that their accounting records, VAT books, and return details all match. This helps make sure everything is correct and consistent. Doing a review every few months or getting a professional audit can help find mistakes early and avoid FTA penalties.

8) Failing to File a Voluntary Disclosure

When an error is identified after filing a VAT return, the business must inform the FTA by submitting a Voluntary Disclosure (Form 211) within 20 business days. If you don’t do this, you could face heavy fines.

How to Avoid It: When an error is found, the company should quickly file a voluntary disclosure form with the required documents to explain the correction. In this situation, you have to act fast to minimize penalties and show compliance with FTA rules.

9) Not Maintaining Proper VAT Documentation

Many businesses ignore to keep all their VAT records complete and accurate, like invoices, credit notes, import papers, or transaction logs. When these documents are missing or incomplete, it becomes hard to prove VAT claims and can lead to penalties during an FTA audit.

How to Avoid It: If you prefer to have a smooth VAT filing process, then keep all your VAT documents organized and stored for at least five years, as per FTA requirement. It is ideal to save digital copies as well, so you can easily find them during an audit or review.

10) Lack of Oversight on Outsourced VAT Filings

Many businesses hire external accountants or consultants to handle their VAT compliance, but they often don’t review the filings themselves. This is where they make big mistake. Without proper checking, even small errors made by others can cause your VAT return to be rejected or lead to penalties.

How to Avoid It: If you hired a team for VAT services, then you should always double-check that all the submitted information is correct and that all the requirements are completed. Reviewing reports, checking TRN details, and keeping records of filing confirmations help the business stay compliant. Working with an FTA-registered Tax Agent also ensures the work is accurate and handled professionally.

Conclusion

VAT filing should be done by a tax accountant because accuracy is the key element in order to be fully aligned with FTA requirements. To learn how to file VAT return yourself, please refer to our Step-by-Step VAT Filing Guide. In th event you prefer to outsource VAT filing to a tax consultant, Vertix can help you file your tax returns with full compliance of the applicable VAT regulations. 

When businesses understand the common VAT filing errors and take steps to prevent them, they can stay compliant and avoid unnecessary compliance issues. Keeping records well-organized, filing returns on time, and seeking professional guidance all play an important role in managing VAT smoothly.