Where did quarter one go?
It feels like only last week we all headed into the new year with a bright and sparkly 2018 business plan, looking to hit the ground running, but here we are, two weeks into quarter two, in the midst of business plan reviews, planning for the second quarter and then of course, for most of us, it’s now time to forcibly look at the achieved financials of the year to date in order to complete our VAT return.
For many of us this will be the first time we have completed this exercise, its new for us and also for the UAE Government, we are all taking our first steps into the unknown.
As I start the process of committing numbers onto the FTA online VAT return form and discuss the process with friends and colleagues from other Companies, I am finding the process educational from a business point of view, and I wanted to share this learning with you as you may find them useful;
- You need an online finance system:
Many start-ups manage their invoice process via an Excel spreadsheet and issue Word created paper invoices. This of course works well when you are small and is certainly a good system to use if you are under the VAT threshold.
However, its time consuming, it’s very easy to make mistakes and as soon as you move over the VAT threshold, causes no end of issues. Once you get to this stage its time to invest in an online accounting system.
There are many simple systems available that any non-accountant can use. Its invaluable when it comes to recording VAT and provides simple downloadable reports that make the VAT return an easy process to complete.
- It’s no longer just an invoice:
From 1st January 2018, the layout of invoices changed. They now need to be titled “Tax Invoice” and show the TRN number of your Company as well as the TRN number of the Customer you are issuing the invoice to.
The VAT amount needs to be clearly shown. If the client does not attract VAT, then you need to show Zero Rated VAT on the Tax Invoice.
The Tax Invoice needs to be sent as soon as the service or product has been delivered, not when payment has been received. This sounds obvious, but from talking to other business owners, this is not how some Companies manage their invoice process.
- Still waiting for payment:
If you have issued a Tax Invoice within the quarter you are declaring, you need to state the taxable amount and the VAT on the return and pay this to the FTA, even if you have not collected invoice payment from the Client/Customer. This means that not only have you delivered the service without payment yet, you are also making the Clients/Customers VAT payment to the FTA.
This makes debt management an extremely important part of your team’s duties. Completing the VAT return brings late paying and potentially non-paying clients to the attention of the management team who should take action quickly to stop this occurring again.
How you manage this process is down to your Company policies and processes. If you decided to go down the legal route to collect outstanding debts, it is essential to make sure you have a signed contract or PO in place before delivering the service.
- Put processes in place during the quarter:
If you have an online system in place, its very easy to get into the detail of the VAT we need to pay from the Tax Invoices issued. There will be a “tax summary” report as part of the package, which you can run for specific periods. What is less obvious is the VAT we can claim back.
During the quarter Companies are making payments for services they have used and will have put these payments into the expenses section of the FTA online system. However, its easy to forget that you can claim back VAT from these services. We are all new to this process and may forget which invoices have VAT which we can off set against the VAT we owe the FTA.
I have found the best way to make sure you don’t miss anything is to keep a virtual file where you save any paid invoice that you plan to claim back the VAT on. This has made it a very simple check for me with our return to make sure we have not missed any VAT payment that we can claim back.
A lot of the points above may sound like common sense. However, I hope they have been helpful for those of us that do not have a Finance team or have outsourced your financial obligations.
As business owners, I would advise as soon as finance becomes a large part of your day to outsource to an expert. Its important to remember that outsourcing your financial services or having an inhouse accountant does not mean abdication of your responsibilities. As I mentioned at point 3, its extremely important to manage your debt by reviewing your financial data. The last thing you want to do repeat deliver a service to a client that has yet to pay their past invoices.