When VAT was introduced in the UAE in 2018, many businesses assumed it would be simple: just charge 5% on sales and pay it to the government. But in reality, VAT compliance is much more complex, and small errors can lead to penalties, cash flow issues, or even reputational damage.

Over the last few years, I’ve noticed that many small and medium businesses (SMEs) make the same mistakes repeatedly when filing VAT returns. These mistakes don’t always seem obvious at first, but over time, they add up.

Here are three common VAT mistakes I see often — and how businesses can avoid them:

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1. Not Reconciling Bank Transactions Before Filing

Many businesses file their VAT return directly from sales invoices, without matching them against actual bank receipts and expenses. The problem? Sales may be recorded, but payments might not have been received, or expenses might be duplicated.
This mismatch can lead to incorrect VAT input/output values, which creates problems during audits.

✅ Tip: Always reconcile your accounts in QuickBooks (or your accounting system) before finalizing VAT returns. It ensures accuracy and avoids last-minute surprises.

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2. Claiming Input VAT on Non-Eligible Expenses

A common misconception is that “every business expense includes recoverable VAT.” This is not true. Expenses like entertainment, personal spending, or employee-related costs (that aren’t business-related) are not VAT deductible.
Businesses often claim VAT on these expenses unknowingly — and only realize the mistake when penalties are applied.

✅ Tip: Review the FTA’s guidelines regularly, or set up expense categories in your accounting software to automatically flag non-eligible expenses.

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3. Missing Reverse Charge Entries for Imports

For businesses that import goods or services, the reverse charge mechanism applies. This means VAT needs to be accounted for even if no actual VAT is charged by the supplier.
Many SMEs overlook this requirement, leading to underreporting and compliance issues.

✅ Tip: Set up your accounting system (like QuickBooks) to automatically handle reverse charge transactions. It saves manual effort and reduces risk of error.

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Final Thought

VAT compliance isn’t just about avoiding fines. It’s about building trust with regulators, improving cash flow management, and running a business that is audit-ready at any time.

Accounting software like QuickBooks can automate a lot of these processes — but software alone is not enough. Businesses need proper setup, discipline, and regular reviews to make sure their data is reliable.

The key takeaway: spend time getting your VAT and bookkeeping right every month, not just at filing deadlines. This habit will save businesses from penalties, stress, and wasted hours.

What’s your experience? Have you ever faced a VAT challenge that surprised you? I’d love to hear from business owners and finance professionals in the comments. 👇