Every business running successfully in the UAE requires a structured financial auditing and accounting practices to manage the daily accounts and avoid losses.
SMEs and Financial Management
Small businesses are considered as the economic backbone of the UAE. They are major growth drivers as they help in generating jobs that contribute to the local economy.
SMEs must handle their finances with strategic planning, control, and management. Invest in new accounting software for cost-efficient financial forecasting, reporting, and monitoring.
6 most common mistakes SMEs make in the UAE
1. Not Maintaining the Records Properly
After the introduction of VAT in 2018, businesses in the UAE have to keep their records clean and get them audited periodically.
Also, businesses must be filing tax returns at the end of the financial year
SMEs often find it difficult to manage their accounts amidst the daily business operations and the accounting software used is often not updated with input data for any reporting.
2. Not Moving to Computerized Accounting Practices
Many of the businesses are still using conventional means to record their business transactions and finance.
Computerized accounting practices will help in streamlining financial activities. accounting management, value-added tax (VAT) compliance, invoicing, billing, and inventory.
Migrating to a VAT Complaint business management software is vital to ensure compliance with the VAT regime of UAE.
3. Lack of Time Management
The financial accounts must be monitored periodically by the finance team via internal audits.
Timely updating the financial reports and using the latest accounting software will help in planning for audits and preparing reports.
It will help the account teams to reduce the last-minute burden of preparing audit reports and taking stock of VAT filing and returns during the end of the financial year.
4. Lack of Right Talent Pool
Recruiting the right talent or hiring the right professional accounting firm could help companies in expense tracking, paying vendors, tracking bank accounts, and processing payroll.
In accounting, mistakes could hamper business relations, hence must be handled effectively through clear communication in case of any errors or misrepresentation.
A well-maintained accounting database would help small businesses to monitor their outstanding payments easily by viewing all the invoices and take the required action.
5. Lack of VAT & Accounting Knowledge
Small business owners, self-employed individuals, and freelancers must gain a basic knowledge of the accounting procedures and perform other routine tasks.
Garner VAT and Accounting knowledge and best practices, reduce data entry errors from time to time.
Implementing VAT Compliant Financial Practices
Develop and practice accounting policies and to perform various reconciliations promptly to ensure data entries are corrected and closed perfectly.
Not every accountant would be well versed with VAT laws, tax compliance policies, such cases outsource certain areas of accounting and bookkeeping to trusted external agencies.
6. Data Inaccuracies
Failing to properly categorize income and expense. All the transactions of the company must be recorded accurately.
Inaccuracies in financial reports could lead to getting levied with tax evasion and fraud charges.
Monitor all the Financial Records Thoroughly
Hence, monitor the calculations for capital assets, discrepancies in profit margin, inaccurate tax codes, & incorrect expense list.
Insufficient evidence for VTA reclaims, Balance sheet adjustments, etc., should be rechecked and audited to ensure a robust financial system is in place.
Common VAT Filing Mistakes made by SMEs
Small and Medium Enterprises are prone to making errors in filing tax returns mainly due to lack of planning, unavailability of the right resources, not issuing valid tax invoice, not maintaining proper transaction records, etc.
Common Mistakes SMEs make during VAT Return filing
- Non-maintenance of financial transaction records
- Errors in calculation & paying VAT
- Lack of financial planning and reporting mechanism
- Hiring the wrong resources
- Failure to issue valid tax invoices
- Limited understanding of VAT laws of the UAE
- Not having the right accounting practices
For accurate VAT calculations understanding of the concept of exempt, zero-rated, and VAT free items, etc., is required.
How SMEs can streamline their Accounting Procedures to comply with VAT Laws?
Companies must have a periodic review of VAT compliance practices and conduct financial audits regularly.
Upgrade the accounting software to maintain seamless record-keeping and appoint tax experts for conducting audits.
It is essential to train the financial team to follow the best VAT & Accounting practices.
Investing in Accounting Systems & Good Resources
SMEs must invest in robust accounting systems and train employees, hire new talents.
To be compliant with the VAT rules and other financial best practices a constant follow-up from the top level and employee involvement is a must-have.
Robust Accounting Software for better Tracking of Financials
A more holistic approach is required to keep track of the financial operations, VAT compliance, and smooth flow of transactions.
Hence, with the latest accounting software, employee training, and building an understanding of the VAT Regime of UAE, the business can avoid any misrepresentation of financials and avoid fines.
To know more about VAT & Accounting in the UAE, talk to our expert team right away!
Contact: Aurion Business Consultants