If you are reading this article in a location where VAT has been in place for many, many years, you may be thinking this is teaching your grandmother to suck eggs. If you have never dealt with VAT before, however, this may scare the pants of you.
In short, the responsibility of a business with regards to VAT is to collect Tax on behalf of the Government. Not too difficult a task at this point but, businesses are also responsible for understanding and implementing all the laws and regulations pertaining to VAT as well. The old saying remains true and daunting, ‘Ignorance is no defense’. If you don’t know what you are doing and you make any mistakes, you risk some hefty fines (up to 5 times the VAT that should have been collected or, to put it another way, 25% of the value of your turn-over for the period in question – ouch!).
It gets a bit more intricate than that. The theory of VAT is that the tax is ultimately levied on the end user. By that rationale, it should be possible to claim back or off-set VAT you have paid out in the chain, as it has been covered by the VAT levied on your charge to the next person in the chain. This is the reason many businesses are only entering contracts and sub-contract arrangements with VAT registered businesses.
Next comes the question of dealing with suppliers from outside the GCC and, for the time being at least, other GCC countries where VAT is not yet in place.
When all is said and done, VAT falls into the realm of accounting as a primary responsibility but, make no mistake, it impacts every element of your construction business. Manual application and calculations of VAT in an industry as complex as construction would likely require a significant increase in the size and scope of your accounts department and would certainly be something to float to the top of any risk analysis.
On a positive note, there are solutions already available in the market that have been handling the complexities of not only VAT but all types of taxation for construction companies for decades. Construction ERP systems have been streamlining paperwork, processes and procedures in the construction industry for many years now and have continued to develop and improve over the decades they have been in play.
Consider BuildSmart from CCS as a prime example. This construction specific software enables all elements and departments involved in multiple projects to be aligned and to communicate, update and adjust with each action and transaction that occurs (within your teams and departments as well as those from sub-contractors). When we say every department, that includes accounting. The headache and challenge of reconciling VAT, zero rated and exempt transactions are done for you, helping you to protect your margins regardless of the challenges and changes VAT brings.
Contact CCS today and let us demonstrate what BuildSmart can do for you.