Tax & compliance
Correcting a VAT error — voluntary disclosure
Telling the FTA about a mistake before they find it produces a materially better outcome than waiting. There is a threshold below which you simply adjust the next return instead.
The rule
What the law actually requires.
Where an error in a submitted VAT return means the tax payable was understated or the refund overstated, the registrant must correct it. Below a threshold — commonly AED 10,000 of tax — the correction can be made in the next return without a formal disclosure. Above it, a voluntary disclosure must be submitted through EmaraTax, generally within twenty business days of becoming aware of the error. The same mechanism applies where an error was in the registrant's favour and produced an overpayment.
The reason to do this promptly rather than hope is that the penalty consequences differ substantially between an error you disclose and an error the FTA identifies on audit. A voluntary disclosure attracts a fixed penalty and a percentage charge that is materially lower than the penalty for an incorrect return discovered by the authority — and, less measurably, an audit that finds an undisclosed error tends to widen. Businesses that discover a systematic error across several periods should take advice before disclosing, because the correct scope of the disclosure matters, but the instinct to disclose is the right one.
Thresholds and deadlines
- Threshold
- Errors under AED 10,000 of tax can be corrected in the next return
- Above it
- Formal voluntary disclosure through EmaraTax
- Timing
- Generally within 20 business days of becoming aware
- Penalty
- Fixed penalty plus a percentage — lower than on discovery
- Overpayments
- The same mechanism applies where the error favoured you
- Systematic errors
- Take advice on scope before disclosing across periods
The compliance calendar
What to do
The filing, step by step.
- Quantify the error preciselyPer period, and in tax rather than in turnover. The threshold applies to tax.
- Establish whether it crosses the thresholdBelow it, adjust in the next return. Above it, disclose formally.
- Disclose within the windowGenerally twenty business days from becoming aware. Delay compounds the position.
- Take advice on multi-period errorsThe scope of the disclosure and how far back it should reach are judgement calls with consequences.
- Fix the underlying causeA recurring error disclosed once and repeated the next quarter is a worse position than the original mistake.
Related
Questions
Where the error exceeds the threshold — commonly AED 10,000 of tax. Below it, the correction can be made in the next return.
Generally twenty business days from becoming aware of the error.
Disclose. The penalty on voluntary disclosure is materially lower than on an error identified by the FTA, and audits that find undisclosed errors tend to widen.
The same mechanism applies. An overpayment can be corrected and recovered through disclosure.
One question
Where are you with VAT?
The test is rolling rather than annual, which is why the obligation usually arises mid-year rather than at a year end. Above AED 375,000 of taxable supplies over any twelve months it is mandatory, and the thirty-day forward test can trigger it before you have invoiced anything.
The thresholds explainedOr just ask usThen the exposure is almost certainly input VAT rather than output. Claims without a valid tax invoice, entertainment, and personal-use vehicles are the three findings that come up on nearly every review, and the adjustment carries a penalty.
What gets disallowedOr just ask usDisclose it rather than hoping. The penalty on a voluntary disclosure is materially lower than on an error the FTA finds, and audits that uncover undisclosed errors tend to widen rather than close.
Voluntary disclosureOr just ask us