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4 Effective Methods for VAT Accounting to Ease Tax Bookkeeping Process

Taking a look at the other countries with implemented value-added tax (VAT) in their nation, there are a number of methods in order to manage accounts for VAT. With the season of VAT coming to our country in just a few weeks’ time, it is a good thing to see how other countries manage their taxes and their methods of doing so.

A VAT accounting method is a kind of system that will help you to let the government know how much VAT you’ve charged and how much VAT you’ve paid. Using methods can make VAT accounting in your business to be more organized.

However, before a company can apply the schemes below in accounting for their VAT, they must first be eligible to do so since each scheme requires a certain value of turnover.

There are four well-known VAT accounting schemes that can be found to be used by some countries. The below VAT accounting methods are distinguished from each other according to their nature and how they’re done.

1) Standard VAT Accounting

In this first method, accounting for VAT is done based on the invoice date. It is not done according to the date that your accounting received VAT.

This is considered as the usual method, as per its name, because a detailed record of all VAT affairs (purchases and sales) is kept. The VAT accounting entries are all recorded in a VAT accounting software or a log book to capture the VAT data. A quarterly VAT return is then made based on the information that is kept.

In this method, it is a must that four VAT returns are completed every year. All VAT due and refunds are payable quarterly.

2) Annual VAT Accounting

This VAT accounting scheme only requires you to submit one VAT return per year. Instalments are paid all through the year. At the end of the year, a balancing payment will be done to ensure accuracy.

It is believed that cash flow is aided by this. Besides that, the administration and managing time that is usually spent on VAT returns are lessened. Although some cases happen wherein you either overpay or underpay the government. Final balance payment or refund are the courses of actions that are done in times like the abovementioned.

3) Flat Rate VAT Scheme

The Flat Rate VAT method uses a company’s turnover to determine the flat rate of the VAT that will be paid to the government. In using this VAT accounting scheme, there is a varying flat rate percentage. To know what percentage applies to a company, the industry type must be determined first because different industries have different flat VAT rates.

In using this VAT accounting method, VAT details are not accounted for in every purchase or sale. However, VAT is still charged on the invoices.

4) Cash Accounting Scheme

This last VAT accounting scheme is recommended for contractors since companies only pay VAT only when they have received the payment from their clients. It means that a business is not required to pay VAT if a client never pays. Unlike the Standard Method, VAT is not paid on the date that an invoice is sent but on the date that the customer pays.

However, this also means that VAT cannot be reclaimed unless the company has paid its suppliers fully. Also, similar to the Standard Method, VAT returns are done every quarter.

In the UAE, every taxable invoice is paid to the government and accounted for with the needed details or the VAT accounting entries required by the Federal Tax Authority. To know more about VAT, Farahat & Co., VAT consultants in Dubai, accounting firms in Dubai can extend its hand to help you understand more the new regime coming to us next year. Being an outstanding VAT consultants in UAE, we can ensure you with a quality service that you most deserve. You can book a free assessment with us here.

Ervee is a CPA with international experience in Tax and Accounting. He has over 12 years of experience in accounting and bookkeeping and over a year in VAT implementation, registration, and accounting in UAE. He regularly drives out inefficiencies in company operations and loves the challenge of helping clients find additional ways for an easier and improved compliance and verification of transactions. Read more