VAT audits and health checks

During a recent client engagement event in the UAE, I had some insightful conversations with finance professionals and business leaders on the topic of VAT audits and health checks. These weren’t formal interviews—just honest discussions over coffee and during breakout sessions.

But what I learned was both encouraging and concerning.

I asked a simple question to everyone I met: “Do you think a VAT health check is important for your organization?”

The answer was a consistent and confident yes.

Many professionals acknowledged that penalties imposed by the FTA during an audit are significantly higher than those incurred through a voluntary disclosure.

To illustrate, I shared an example involving an error of AED 100,000 in a VAT return filed in 2023. If the company were to voluntarily disclose this error in 2025, the total penalty would be approximately AED 11,000. However, if the FTA identified the same error during an audit in 2025, the penalty could escalate to AED 147,000. That’s more than 13 times higher than the penalty under voluntary disclosure. As I explained this, I noticed many clients nodding in agreement—the financial benefit of acting early was immediately clear.

There was widespread awareness of how valuable voluntary disclosures can be—not just from a compliance perspective, but also from a cost-saving one.

But as the discussions went deeper, I encountered a recurring concern—particularly from finance heads who are employees, not owners.

One statement struck me the most:

“We don’t want to dig our own grave.”

This was said in response to the idea of initiating an internal VAT review. The underlying fear? If a mistake is uncovered during the review, it may be seen as the finance team's failure—reflecting poorly on their management or oversight. In some cases, they feared disciplinary consequences or reputational damage within the company.

When I asked why, the answer surprised me:

“If we do a health check and discover errors, it might be seen as our fault. Like we failed to ensure proper compliance.”

In essence, they feared being blamed.

They feared being the reason something was wrong—even if the mistake occurred years ago, or was a result of evolving systems, or new interpretations.

This fear often leads to inaction.

Let’s be clear: this is a misconception—and a costly one.

Let’s not forget: VAT was only introduced in the UAE in 2018. That’s recent in tax terms. Systems were immature, interpretations were evolving, and many businesses were navigating compliance for the first time. Mistakes were—and still are—normal. The real risk lies not in discovering them, but in ignoring them until the FTA does.

So, here’s what needs to change.

1. Leadership must foster a culture of support, not blame.

Errors found in internal reviews should not trigger blame. Instead, they should be seen as part of a responsible compliance framework—a sign that the team is doing its job.

2. Finance professionals should be empowered to initiate health checks.

They must feel supported to initiate VAT health checks without fear of consequences. Identifying issues early is a strength, not a weakness.

3. Owners must understand that early corrections add value.

It's better to catch errors internally than wait for an audit notice. Voluntary disclosures can save significant money and demonstrate proactive compliance.

In conclusion, if you’re hesitating to start a VAT health check because you’re worried about what you might find—pause and reconsider. You’re not digging your own grave; you’re safeguarding your foundation.

Let’s move away from fear-based thinking and toward a culture of continuous improvement. Start the audit—not to find fault, but to find strength.