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Retrospective VAT Filling and Corrections

The possibility to correct historical VAT and correcting errors

amavat® realises with the growing complexity of cross-border transactions, technological advances and legislative changes, coupled with differing thresholds, it should come as no surprise that taxpayers sometimes inadvertently make mistakes when trying to maintain their ‘VAT Filings & Compliance’. Regardless of the nature and extent of the error, timing is crucial when it comes to historical VAT filing and correcting an error.

The rules about registration timing can vary between countries, so guidance from amavat® might be essential to safeguard that you register at the precise point. Generally within the EU this is no registration threshold for non-resident businesses (but this can vary slightly between individual countries). Outside of the EU, there may be thresholds, but the position is not consistent, so our professional assistance would be required.

When a business has a legal responsibility to be registered and there is a delay in informing the local tax authorities, it is essential to define the consequences for your business and precisely how VAT is accounted for in respect of this period. The rules differ considerably between tax authorities. amavat® can analyse this for you to make certain that the registration is from the correct date.

amavat® are experienced in resolving the issues presented by retrospective VAT registrations. This consists of advising on the effective date of registration and this positively benefits our clients to make well-timed and accurate submissions of VAT going forward.

Common VAT errors

Here are some of the most common VAT errors below:

Failure to register VAT

You can fail to register for VAT when it exceeds the registration threshold under EU law, e.g. in relation to domestic supplies, intra-Community acquisitions of goods or distance sales from other EU Member States. Businesses should be aware of VAT registration thresholds (which vary depending on the type of supplies), and register as soon as the thresholds are breached. This is an area that amavat® can help, we can actually monitor these thresholds in each country you have business, so that you need not worry.

The application of the incorrect VAT rate

As VAT is a transactional tax, your business must determine the appropriate VAT rate for every transaction, while making sure that the correct rate is charged on your goods or supplies. This is very important since businesses normally make repeated deliveries of identical goods or supplies.

Under EU law, transactions may be considered VAT-exempt or may attract VAT, the rates will depend on the EU countries involved. Determining the correct VAT rate is not always straightforward, especially for businesses that make a variety of goods or supplies. amavat® has the experience and know-how in each country to advise you of the correct rate, so you can correct possible errors.

What next?

We have identified a couple of areas which frequently give rise to errors, we would like to turn your attention to how amavat® can help you correct them below. Nevertheless, before doing so, it is worth mentioning that there is a important difference between an error and a difference in technical interpretation held by a taxpayer and revenue. The right of appeal – which is necessary to any equitable tax system – is available to EU taxpayers against revenue purposes in the area of VAT. The following text will proceed on the basis that a historic error has been discovered, rather than a matter in dispute which the taxpayer would appeal.

How do I proceed after an error is detected?

As stated above, regardless of the nature and extent of an error, timing is crucial when it comes to correcting it. There are obvious advantages associated with taking swift action and letting amavat® assist you in correcting any error/s. This would then limit the mitigating interest and penalties.

Taxpayers that discover historic VAT errors normally legalise their positions with the relevant EU country authorities, either through a correction or a qualifying disclosure.

Possible correction, no penalty

The tax authorities for each EU country permit taxpayers to correct underreporting errors by including an alteration in an ensuing VAT return. This adjustment classically is the amount of the previously under-declared VAT.

Even though a number of conditions require to be fulfilled, taxpayers generally can qualify for a correction without penalty or fine, providing the net underpayment of VAT for the period in question can be corrected in less than EUR 6,000.00.

This correction must be done before the due date for filing the taxpayer’s income tax or corporation tax return (as applicable) for the chargeable period (normally a one-year period) within which the appropriate VAT accounting period ends. If this time limit has lapsed, taxpayers normally will be required to make a qualifying disclosure to correct an error.

Qualifying disclosures

A qualifying disclosure is a written document that summarises all information involved in the error discovered. Although there are some exceptions, this method normally is available to standardise a taxpayer’s tax affairs. The qualifying disclosure normally is prepared by the taxpayer or amavat® can assist and help you, then given to the local tax authorities in whatever country, along with the payment of the under-declared VAT and related statutory interest.

Qualifying disclosure has two types – unprompted and prompted:

  • Unprompted qualifying disclosure is made in advance of ‘notification of audit’ is issued by the local tax authorities, or before an investigation is underway.
  • Prompted qualifying disclosure is made once a ‘notification of audit’ has been issued, but before an examination of the books and records or other documentation has begun.

The local tax authorities will grant, when requested by or behalf of a taxpayer, a 60-day period to prepare and submit a qualifying disclosure. This gives the taxpayer enough time to meticulously examine its books and records, and arrange a full and complete disclosure.

The related benefits with making a qualifying disclosure include non-publication and a substantial decrease in the penalty required by the local tax authorities. Unprompted qualifying disclosures normally result in lower penalties than prompted qualifying disclosures.

If additional qualifying disclosures are not done within five years by the taxpayer of a previous qualifying disclosure, any forthcoming qualifying disclosure usually will be treated as a first qualifying disclosure. The main advantage of this is a decrease in the quantum of penalty assessed.

amavat® concludes

Many businesses will discover a historic VAT error at some point in their lifecycle. Timely action, full disclosure and co-operation with the Iocal tax authorities is recommended when regularising tax affairs.

Should you have any queries, or would like assistance from amavat® in dealing with any taxation matter, please feel free to contact us.