Importance of Tax Audit And Its Effect On Business
Tax is an enforced contribution to a state’s revenue, imposed by the government on workers' income and business profits, or added to the cost of some goods, services, and transactions. Taxation is a method by which governments back their overheads by imposing charges on citizens and business entities. The main purpose of taxation is to accrue funds for the functioning of the government machineries. The Tax Law has come to effect in the UAE from 1 January, 2018 onwards. All businesses in Dubai and across UAE should ensure that every department is ready to take on the new change. One of the major deliberations is the update of company’s accounting software. Same should abide by the laws related to the VAT accounting. Accounting systems should be reviewed so that there is no discrepancy with the recorded transactions.Read more to understand the importance of Tax audit and its effect on business.
What is the Importance of Tax Audit in your Organisation?
A Tax Audit will have the following advantageous or importance in an organization:
- A Tax Audit will maintain the books of accounts and all other records regarding the revenue and expenditure properly so that the eleventh hour rush and panic can be avoided
- It will ensure that the total income and the claims for deduction are correctly and accurately entered by the businessman
- It restricts the chance of fraudulent practices.
- Tax Audit helps proper presentation of accounts before the tax authorities. It identifies the weaknesses in the accounting system and enables to suggest the improvements.
- An Audit facilitates the provision of advice that can have real financial benefits for a business.
- An Audit adds credibility to published information for employees, customers, suppliers, investors and tax authorities.
- An Audit provides assurance to shareholders that the figures in the accounts show a true and fair view.
- An Audit builds up the reputation of the company.
- Government authorities accept audited statements as true and fair for the purpose of taxation.
- Auditors can give concrete suggestions regarding the improvements of business on the basis of their findings in the record.
What is the effectiveness of Tax Audit on an organization?
Since Tax Audit is the re-evaluation of a company’s role as a taxable body by the government, its efficacy on an organization is very significant.
- A Tax Audit protects the rights of the tax payer. The tax payer has been granted the right to verify the professional identification cards of the tax auditors. He can obtain a copy of the tax audit notification. He can attend the auditing procedures and obtain copies of any original paper or digital documents
- It maintains the professional confidentiality. The FTA employees are prohibited to disclose any information obtained if not requested by the judicial authorities.
- It gives guidance to a tax payer. Its aim is to settle any questions and problems related to tax as thoroughly as possible through an open dialogue between the tax recipient and the tax payer.
- A Tax Audit increases the credibility of the business and avoids loss of reputation. The true value of the business is known after the audit
What are the typical matters examined during Tax Audit?
There is no fixed frequency to conduct the audit nor will all the VAT registered business be audited. It is the FTA’s discretion to select the businesses required to be audited. The selection is based on either the complexity of the business or the past compliance history or late submission of returns, incorrect Return Filing, etc.
The auditors check the following typical areas during the examination:
- Whether the given details about the company's business operations and the records in its accounting do match.
- Whether the tax returns, information returns and the company accounting records do match.
- Whether the company satisfies the requirements of the tax legislation.
What are the relevant records to be kept for the audit?
Article78 of the Federal Decree Law of the UAE Government states that a Taxable Person should maintain the following 11 records for the Tax Audit:
- The records of all supplies and Imports of Goods and Supplies
- 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 & Services that have been disposed of or used for matters not related to Business, showing taxes paid for the same
- Records of Goods & Services purchased and for which the input tax was not deducted
- Records of Exported Goods & Services Records of adjustments or corrections made to Accounts or Tax Invoices
- Records of any taxable supplies made or received in accordance with Clause (3) of Article 48 of this Decree-Law, including any declarations provided or received in respect of those Taxable Supplies
- Tax Record that includes the following information:
- Due Tax on Taxable Supplies
- Due Tax on Taxable Supplies pursuant to the mechanism in Clause (1) of Article (48) of this Decree-Law
- Due Tax after the error correction or adjustment
- Recoverable Tax for Supplies or Imports
- Recoverable Tax after the error correction or adjustment
A Tax Audit is the reassessment of an organisation's role as a taxable body by the government. By conducting a Tax Audit, the government Auditor in the UAE determines whether a business is operating in-line with the tax laws including VAT and Excise laws amongst others. Since tax is self-assessment tax, the Auditing is conducted by the FTA to ensure if the VAT details furnished are correct or not and if the tax accountability is paid within the due date as per the provisions of the pertinent laws. If the FTA notices any discrepancies like underpayment of the VAT or over claiming the input VAT deduction, a notice will be issued asking the taxpayer to pay the VAT along with penalties. It's always recommendable to do Pre-tax audit by a Professional auditing firm to safeguard the last minute rush and legal consequences.
Why prefer CDA Accounting and Bookkeeping Services LLC as the Tax Consultant in the UAE?
As per the Commercial Company’s Law, a VAT Registered business should assign a licensed auditor who is a registered auditor under the Ministry of Economy to audit its financial affairs. An expert tax consultant will make it sure that nothing is missing in the filing of Return and that the company does not draw any negative attention from the FTA. Since the auditors can give concrete suggestions for the improvements of the business on the basis of their findings in the record, we, the CDA Accounting and Bookkeeping Services LLC, are the best in VAT Consultancy Services in the UAE and to solve your Tax related issues. Our experts analyze, identify and solve your business and tax-related issues. We assure you Quality and Timely Support throughout the year. We provide quality and hassle-free services like Bookkeeping Services, Financial Advisory Services, Management Consulting Services, Company Registration For VAT in UAE, Internal Audit For Company, Business Advisory Services in Dubai and a lot more.
If you have any uncertainty, just dial. Our skilled VAT specialists will offer you one-hour free consultation.