VAT compliance means time and other resources allocated to administering and filing the VAT for a business of any kind. However, ignoring VAT responsibilities is not an option. In the article below, we will look at the most frequent causes of VAT breaches and explain the risks related to them. We will also give some advice on how to stay VAT compliant efficiently.
What exactly is VAT compliance?
VAT compliance is defined as operating in the manner of VAT regulations imposed by the origin country. VAT non-compliance, on the other hand, can be divided into two parts – VAT fraud and accidental non-compliance.
VAT fraud is typically related to intentional non-compliance practices and schemes aimed at reducing the tax burden. Accidental non-compliance examples are often linked to errors in VAT returns or missed deadlines. Both instances of VAT non-compliance, despite the intent, can bring fines and other types of damage to a company.
A frequent type of VAT breach is failing to register for VAT. Companies become obliged to register for the VAT permit once their revenue exceeds a set threshold. From that moment onwards, the business must collect a specified VAT amount from its customers and return it to the tax authorities. Failing to do so can result in fines or even imprisonment.
Another type of common VAT fraud is overclaiming VAT when submitting VAT returns. While VAT returns often reduce operational costs significantly, submitting false information with the intent to receive a larger VAT relief is a serious VAT breach.
What are the common results of VAT non-compliance?
The damage of VAT breaches is many-folded. Here are several types of risks that emerge once a company fails to stick to the VAT regulation:
- Fines and penalties
In most countries, companies that have failed to submit a correct VAT return or missed the deadline face fines or surcharges – an interest rate that is added to the amount due until the company pays VAT.
- Audits
VAT audits and inspections are standard practices and can be planned or triggered. A country‘s tax authorities can initiate the audits once non-compliance is detected. Such procedures are often time-consuming to the business as they can require full access to financial and tax documents. Another risk related to the VAT audits is reputational damage if the clients are informed about the audit and become suspicious of your business‘ health.
- Bans on trading
Extreme instances of VAT breaches are dealt with severe repercussions. These include banning a company or a sole proprietor from trading for a defined period of time.
- Criminal charges
Imprisonment, fines, and criminal charges can become a viable answer to intentional VAT fraud that involves large sums of money in taxes hidden from the government.
How to stay VAT compliant?
Luckily, currently, there are plenty of tools that help navigate VAT easily and without worrying about errors and accidental fraud.
To stay VAT compliant, you will have to understand VAT obligations that fall upon you in each of the countries where your company operates. You should not miss the VAT registration deadlines, consistently file correct VAT returns and stick to the deadlines. Your VAT archives should also be complicit to the regulations and accurate.
If it sounds like a lot, you can trust professionals to deal with your VAT compliance from the very beginning. If you want to learn where to start, please get in touch with our team at 1stopVAT.