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Missing receipts and invoices can cost UAE businesses through higher taxes, investigations, lost VAT refunds, and distorted financial statements.
- One missing AED 1,000 receipt can add AED 90 to your tax bill if your income tops AED 375,000 under the 9% corporate tax, and those small gaps add up fast.
- A pile of missing receipts can raise a red flag for tax authorities, and UAE tax evasion penalties average seven years in prison plus fines.
- Without proper documentation your VAT refunds can be delayed or lost, which leaves cash on the table and pushes some firms to just write VAT off as an expense.
- Misfiled expenses distort your financial statements and metrics like customer acquisition cost, which can turn into reporting errors when you talk to investors, and Alaan corporate cards notify you to submit a receipt after every transaction so you stop losing them.
When businesses fail to record invoices and receipts, it's like a puzzle where missing pieces can create a picture you'd rather not see. These little pieces of paper can make a big difference for your business, and neglecting to collect and document these records can have significant repercussions, affecting areas like taxation, audits, and even VAT reclaims. In this blog, we're going to discuss why these documents matter so much, and how managing them properly can save you from potential headaches.
1. Paying more taxes
One of the most immediate impacts of missing receipts and invoices is the potential for your business to pay more in taxes. This situation can arise if your expenses fall into specific categories, such as those with missing documentation, expenses unrelated to your core business, or other categories based on your local tax regulations. The outcome is simple: your business ends up with a higher tax bill.
To put this more clearly, consider a scenario where your business operates in the UAE and you fail to submit a document for an expense worth AED 1,000. If your annual income exceeds AED 375,000, you will incur an extra AED 90 in taxes by the year's end (9% corporate tax for taxable income above AED 375,000) solely due to one missing document. Missing these receipts often can quickly add up to additional tax expenses and impact your bottom line.
With Alaan corporate cards, every time you make a transaction, you get a notification to submit your receipt so that you never miss another one again!
2. Risking tax investigations
Now, let's talk about something more serious. If you have lots of expenses missing receipts, it could raise a red flag for the tax authorities. They might think you're trying to hide some of your profits to avoid paying taxes and the fines can be pretty hefty. Tax evasion penalties in the UAE consist of a prison sentence and a monetary penalty. The average jail time for tax evasion is 7 years and it can exceed the penalty of a certain amount for bigger money laundering or tax fraud.
3. Missing on VAT refunds
When applying for a VAT refund, businesses are required to provide detailed transaction information, such as invoice numbers, for each field in the VAT return. It's crucial that the breakdown for each field aligns with the VAT return being claimed. Failure to include receipts can result in unclaimed tax credits, delayed or missed refunds, leading to negative cash flow and tax leakage. This, in turn, increases business costs and reduces profitability.
Many companies face challenges as their ERP systems or accounting software often do not generate the necessary reports requested by tax authorities, making the VAT refund process burdensome and frustrating. Consequently, some businesses choose to write off VAT as an expense rather than allocate resources to recover their rightfully owed funds.
With Alaan's expense management solution, you can streamline the reconciliation and categorization of all receipts and invoices, ensuring you maximize your VAT refunds hassle-free!
4. Distorted financial statements
Mishandling expenses by placing them in incorrect categories or associating them with the wrong time period can distort your financial statements and KPIs. Imagine if your marketing, IT or partnerships expenses are misclassified or cannot be reconciled with the right category or period. This discrepancy can significantly impact important calculations, including customer acquisition costs and lifetime value metrics. Inaccurate financial data could also lead to reporting errors when communicating with investors, both current and potential, as well as business partners.
So, what's the bottom line here? To keep your business running smoothly, it's essential to keep your receipts and invoices in order. You don't want trouble with taxes or your financial information all mixed up. That's why using digital tools and technology to help you keep track of your expenses is such a smart move for your business.
