Having various clients to handle, our company has noticed that accounting clients make some common mistakes, especially when it's the first time that they are cooperating with an accountant. Accountants may make some common mistakes as well and this is observed when we take over accounting work from other service providers.
Let's have a clearer picture of which are the most common pitfalls by both clients and accountants:
ERRORS AND SHORTCOMINGS BY OUR CLIENTS
1. SALES INVOICES
Companies or individuals which are registered with the VAT must respectively charge their clients VAT. The VAT rate is determined by various factors such as:
- The nature of business i.e. the service or the product which is provided
- The customer's residence (Cyprus, EU or non-EU)
- If the customer is registered with the VAT
- If the products (in case that the company is trading goods) are delivered directly to the customer or if a third country (EU or non-EU) is involved
The above-mentioned factors are usually not taken into consideration from the clients since they are not aware of their importance and the impact such errors could have.
A simple example is issuing a sales invoice to a customer who is also an EU resident (except of Cyprus for which Cyprus VAT Rates are applicable 19%, 9%,5% or exempted) and who is registered with the VAT as well. Such invoices should bare no VAT since they fall into the EU VAT Reverse Charge Regulation (we will explain the reverse charge calculation in another article). As a result, the client will be probably charged with penalties, in case they do not inform their accountant on time who will guide them accordingly and take the relevant actions. The penalties will concern the VAT return, which has to be submitted on a quarterly basis and the VIES declaration, which concern the sales to other EU state members, since these declarations will have to be submitted or revised.
2. VAT RATE ON PURCHASES AND EXPENSES
This point, like the above point, concerns only the clients (companies or individuals) which are registered with the VAT.
Companies or individuals which are registered with the VAT, usually forget to provide their services/products providers with their VAT number. As a result, they are charged with a VAT amount in cases which they could have avoid it (such as the reverse charge as mentioned in point 1).
Not including the VAT number on the invoices has an impact to the accountant as well. Since the purchase should have been recorded based on the Reverse Charge Regulation, the accountant is forced to declare it in a different way in order to include it in the VAT return. The most common practice is to include the whole purchase or expense (i.e. the gross amount is declared since no VAT can be claimed from abroad.
3. VAT REGISTRATION
Knowing when your company or yourself must be registered with the VAT may be the most important pitfall to mention.
Some of the most usual reasons to be registered with the VAT are presented below:
- The sales have exceeded the threshold which is Euro 15,600
- The company/self-employed issues invoices to other member states in the EU
- The company/self-employed receives services/products for which the Reverse Charge is applied, which exceed the threshold of Euro 15,600
- The company/self-employed receives goods from other EU state members, which exceed the threshold of Euro 10,251.661
The clients must keep us informed regarding the sales invoices they issue so that we / their local accountants will be able to guide them accordingly as soon as they must be registered with the VAT (not all the businesses must be registered with the VAT, there are exceptions for businesses with certain nature of business).
The best practice to follow is to share with their accountant (via Dropbox, OneDrive, GoogleDrive) the sales invoices so that the advice can be immediate.
Note: The company or self-employed can be registered with the VAT voluntarily if they wish.
4.OBLIGATIONS & AUTOHRITIES
A very important matter to which we must draw our attention is the obligations a company or a self-employed person have.
Obligations such as:
- Taxes and V.A.T. payments
- Social Insurance Contribution payments
- Annual Report (Financial Statements) Submission (not applicable for self employed which do not exceed Euro 70,000 turnover)
- Annual Levy payment to the Cyprus Registrar of Companies (not applicable for self-employed)
These obligations must be prioritised as significant penalties and fines can be applied in case the payments are delayed.
Clients which ignore or do not take seriously their obligations are usually dealing with the consequences which could be penalties payments, investigations by the authorities, accounting support as a result (which means extra fees for the client) and generally, waste of precious time and resources by both the client / company and its accounting firm!
In extreme cases, noncompliance can result to trial and even prison in very extreme cases where VAT or Social Security Contributions remain unpaid.
5. OLD ACCOUNTING RECORDS
Clients usually bring accounting records that concern previous quarters (this is mentioned in case the client is registered with the VAT) or even previous years! This mistake is very common since clients usually may delay to pay an invoice or the payment may fall to the next year. For example, an invoice could bare a date 20/12/20XX and the payment could take place during January of the next year.
In addition, in some specific cases, the client may bring the accountant old accounting records (such as 3-4 year before the current year). This, most of the times, happens because the client is not organized well and by extension, they do not meet their businesses' obligations.
This practice has an impact both in the results and conclusions that are extracted of the Financial Statements and in the relevant taxes that must be paid based on the profits (in case there is a profitability). By including expenses or sales, which concern previous years in the next years or by omitting to include them in their current year, there is no clear picture of the company's (or individual's) performance.
In addition, in case the amounts are significant, the accountant must proceed with the relevant changes which will affect the previous year's accounting or/and audit, tax calculations and submissions to the authorities. Based on the above, is more than clear that it is better to be more organised and compliance with the company's obligations, rather than to wasting time, efforts and money!
About Us
CYAUSE Audit Services has extensive experience in the insurance industry has helped tens of insurance brokers and agents register and get licensed by the local Cyprus regulator granting them passporting access to the rest of the European Union.
CYAUSE Audit Services is an Audit & Assurance firm with offices in Cyprus and the UAE. During 2015 we have been awarded by I.C.P.A.C and the A.C.C.A (local and international association of Chartered Certified Accountants) for the Quality of our Audit Services and our Office's Procedures.
Being a Truly International Audit & Assurance firm, we have associates from all over the world and we are constantly looking for new associates to expand our network further. At present, CYAUSE Audit Services operates internationally through its membership with BKR International amongst the largest American associations in the world, Accace Circle, a co-created business community of like-minded BPO providers and advisors who deliver outstanding services with elevated customer experience. Our network covers almost 40 jurisdictions with over 2,000 professionals, it supports more than 10,000 customers, mostly mid-size and international Fortune 500 companies from various sectors, and processes at least 170,000 payslips globally.
CYAUSE Audit Services Ltd is also a member of BKR International one of the biggest US Accounting Associations of the word and the 3E Accounting Network, an international accounting network which originates from Hong Kong and has more than 80 members from all over the world.
Learn More about Cyprus Corporate Environment
Information about CYAUSE Audit Services and the Cyprus Corporate & Tax System can be obtained from our Website or our YouTube channel which provides valuable information about the Corporate & Tax Environment of Cyprus.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
