In the final blog of our three-part series on VAT compliance penalties, Vertex Director of Solutions Marketing and subject matter expert, Gunjan Tripathi, discusses the importance of being audit ready and how this can be achieved.
Audit checks are a frequent occurrence to ensure that VAT is calculated and reported correctly. They also help identify any errors or omissions. Sample checks are carried out during a VAT audit. A random sample of transactions, invoices, or other records is chosen to test for accuracy, and completeness, and to ensure that businesses are adhering to all applicable regulations. The sample audits may zero in on specific areas of VAT reporting and compliance, VAT recovery, and VAT calculation.
In the event of inaccuracies or omissions being discovered by the VAT inspector, the tax department will be required to undertake a significant amount of work to rectify the records. Additionally, penalties or fines are likely as well. If a significant error or a high error rate is discovered, inspectors may determine that your VAT reporting is unreliable, possibly resulting in increased penalties and triggering an extension of the audit or can impact your ‘risk rating’ with the tax authority.
Consider the Real Cost to Your Business Beyond the Penalty Amount
VAT non-compliance penalties can negatively impact a company's reputation, in addition to the financial and official consequences. Incorrect VAT handling can damage business relationships with customers and vendors, and negatively impact employee satisfaction.
Ensuring compliance with VAT regulations can be challenging for businesses. Failure to do so may result in costly fines and time-consuming rectification processes.
Please remember that Tax Matters provides information for educational purposes, not specific tax or legal advice. Always consult a qualified tax or legal advisor before taking any action based on this information. The views and opinions expressed in Tax Matters are those of the authors and do not necessarily reflect the official policy, position, or opinion of Vertex Inc.