Manual vs Digital Record Keeping for VAT Returns

Manual vs Digital VAT mgmt

The onset of technology in our lives has surely changed the way we look at things. Remember the way we used to wait for the newspaper in the morning to get our daily dose of news? As opposed to this online news apps and mobile televisions now bring the news to us as it happens in real time. Digitalization of every single aspect of our lives has brought everything at our fingertips.  

Digitalization has not only touched the aspects of our daily lives but also government compliances. Governments across the world are trying to bring as many processes online and digitalizing as many aspects of the process of tax compliances and filing as possible. The introduction of VAT in UAE last year was one such move where tax was introduced in UAE for the first time and VAT Return filing was supposed to be online.

Record keeping for VAT compliances

VAT return filing has mandated businesses to maintain records for sales invoices and corresponding VAT invoices. Every taxable person needs to mandatorily maintain books of accounts under VAT UAE law.

Maintaining relevant records, supporting documents and other account books is crucial for any business to produce correct record of payment of cash and receipt of transactions done by company.

The VAT law prescribes that every business must maintain records for a minimum of 5 years and this period extends to 15 years for real estate companies.

Following are some records that a tax-paying business must have according to the VAT Decree-law:

  • Records of all supplies and Imports of Goods and Services.
  • All Tax Invoices and alternative documents related to receiving Goods or Services.
  • All Tax Credit Notes and alternative documents received.
  • All Tax Invoices and alternative documents issued.
  • All Tax Credit Notes and alternative documents issued.
  • Records of Goods and Services that have been disposed of or used for matters not related to Business, showing Taxes paid for the same.
  • Records of Goods and Services purchased and for which the Input Tax was not deducted.
  • Records of exported Goods and Services.
  • Records of adjustments or corrections made to accounts or Tax Invoices.
  • Records of any Taxable Supplies made or received.
  • A Tax Record that includes the following information:
    • Tax due on taxable supplies
    • Tax due on supplies where tax is to be paid on reverse charge
    • Tax due after correction of errors or adjustments
    • Input tax recoverable on inward supplies or imports
    • Input tax recoverable after correction of errors or adjustments

Apart from this the books of accounts must also be maintained that include

  • balance sheet and profit and loss accounts;
  • records of wages and salaries;
  • records of fixed assets;
  • inventory records and statements (including quantities and values) at the end of any relevant tax period and all records of stock-counts related to inventory statements.

These records must be maintained to produce enough audit trail so that VAT amount charged can be traced from an invoice all through to the VAT return. This audit trail can be useful when the FTA wants to audit the business to investigate erroneous tax payments.

Why is it important to Digitalize VAT records

VAT records that need to be maintained must be replete with all the details as mentioned above and these can get quite difficult if done manually. Having a system of creating electronic records that can be prepared using automation can help reduce manual errors while preparing these detailed records. Although the FTA does not require you to maintain the records in a specified format, it does require you maintain them in a format that is legible and allows easy checking of information.

Here are a few advantages of maintaining the VAT records in a digital format using automation:

  1. Speed and accuracy: VAT requires you to maintain detailed records of sales and purchases in specified formats and to maintain the related credit and debit notes. These records can be prepared electronically too. Using automations and invoicing software these records can be made faster with more accuracy and in large numbers. Manual record making can lead to errors and delay the process especially when the record generation needs to be in large numbers.
  2. Reliability: VAT records must be made with utmost precision using reliable systems and digital systems of accounting and record keeping that use reliable hardware systems can provide a back-up system that can store, retrieve and even back-up data in case you lose it. Manual systems are also reliable, but they need to be backed up by using photocopy option and that can be very tedious.
  3. Report generation and audit trail: FTA requires you to maintain records in a manner that provides audit trail and allows proper checking of records. This essentially means that you must maintain records that leave an audit trail and electronic record keeping can help create an audit trail for the FTA in a way that an invoice can be tracked all the way to the VAT returns. Manual record keeping can be time consuming and cumbersome in this regard.

Apart from this digitally maintaining records can automatically prepare useful reports for you when it comes to producing sales, purchase and tax paid reports from the systems. It can also generate VAT return reports for returns filed and not filed for a specified period.

  1. VAT return preparation: Digital record keeping can also provide you with the option of preparing your VAT returns also simultaneously as you prepare records. This can be a time saving alternative to manual return preparation from records after the records are final. VAT returns must be filed online and hence preparing them using digital option is always a better and smarter option.
  2. Emailing capabilities: Digital record keeping will have capabilities to communicate with the vendors and send invoices to them directly over email. Manual systems will not have this option.
  3. Tax rates and laws: Digital record keeping can be updated with the latest tax rates and law changes that can be automatically applied to the invoices for latest VAT rate changes. This reduces human error and leads to accurate record keeping.

These are few of the many advantages of maintaining digital VAT records to file accurate tax returns. Digitalization of record keeping and accounting is the way forward with tax compliances going online and digital. Businesses moving to digitalization is the only way to make sure that record generation is accurate and according to government requirements. Moving to digital records is the preferred way since it will eventually make sure that records can be readily made available for return preparation and filing online.

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