Many businesses are using adjustment column to rectify the mistakes made in previous tax filing return. Contrary to the common practice by business owners in UAE, adjustment column in VAT return can be used only for two specified purposes.
1. Adjustment for bad debts:
Only VAT related to payment not received for supply of goods or services will be included in this. Note that only VAT amount will be reported and not the full amount of bad debt.
Things to be noted while reporting bad debts in return form 201 are:
- Supplier of goods and services has written off the amount receivable from the recipient in full or part in its books.
- More than 6 months have passed from the date of supply.
- The supplier has notified the recipient that the amount due of consideration for the supply is written off.
- The tax has been charged and paid by the supplier.
Example: Supplier located in Dubai, raised an invoice for the supply dated 01.02.2018 having taxable value as AED 5000 and VAT charged at 5% amounting to AED 250. Let us assume that six months have passed and the supplier is yet to receive the total amount of consideration due on the invoice raised on 01.02.2018.
Since the amount is not receivable i.e the recipient of goods or services have not yet paid the amount and will not pay in future as well, the supplier decides to write off the amount due in his books. The supplier accordingly sends a communication to the recipient stating the fact about writing off of the amount due.
Effect of such write off shall be the reduction in the output tax liability of the supplier and increase in the liability of the recipient (reduction in the recoverable input tax)
For example, the total tax liability of the supplier for the month of February was AED 7000 which value includes VAT paid on the taxable of AED 5,000 also i.e AED 250.
Now let us assume September (Month in which supplier decides to write off the amount receivable) liability to be AED 8000. When the supplier decides to write off the amount receivable the VAT already paid on the sale i.e AED 250, the amount of VAT already paid shall be reduced from the total liability payable for the month of AED 8000 and only AED 7750 shall be paid to the government.
Summary of the effect:
|Before write off||For supplier||For the recipient|
|(-) Input VAT||5,000||4,000|
|Net VAT payable||2,000||2,000|
|After write off||For supplier||For the recipient|
|(-) VAT on write off||400||–|
|Net output (a)||7,600||6,000|
|(-) VAT on write off||(400)|
|Net input (b)||5,000||3,600|
|VAT payable (a-b)||2,600||2,400|
2. Adjustment as a result of sales of commercial property:
If a sale of the commercial property has taken place and the buyer has already paid for the output VAT to the FTA, the seller must report the amount of VAT paid by the buyer on commercial property under this column.
This will prevent accounting for the output tax twice, as the buyer has already made a payment of VAT to the FTA.
All amounts entered should be VAT amounts only and can only be negative amounts.
The adjustment will be reported in the adjustment column of Emirates in which property is located.
The entire contents of this article is solely for information purpose and have been prepared on the basis of relevant provisions and as per the information existing at the time of the preparation.. It doesn't constitute professional advice or a formal recommendation. The author has undertook utmost care to disseminate the true and correct view and doesn't accept liability for any errors or omissions. You are kindly requested to verify & confirm the updates from the genuine sources before acting on any of the information's provided herein above.