Sole traders worry about mountains of paperwork

“Basically, on January 1 I’ll become an unpaid tax collector, as if life wasn’t complicated enough with a small business,” said Chris Pickford, 30, a British personal trainer in Dubai.

The introduction of VAT today has small business owners concerned about the additional administrative burden.

“I don’t see how I’m going to benefit with this,” Mr Pickford said.

If you have run your own small enterprise in countries where VAT is applicable, you will know that being a registered supplier can mean sleepless nights, mountains of paperwork and developing an obsession for collecting receipts.

And while the UAE’s 5 per cent rate is only a small fraction of what some other countries impose, the administrative workload will be as significant as it is anywhere else.

Keren Bobker, senior partner at Holborn Assets in Dubai and a regular financial advice contributor to recognises the worries faced by sole traders and small business owners.

“The main focus of VAT has been on how it affects larger businesses and the end consumer, with little focus on businesses with low turnovers,” Ms Bobker said.

For Mr Pickford, there is a very real temptation to bring his annual turnover down to just beneath the VAT threshold, which the UAE has set at Dh385,000.

“I’m bringing in about Dh400,000 at the moment, and it’s tough because I work long hours and don’t have time for much of a social life,” he said.

“I’m certain that I’m going to lose a few clients once I start charging them VAT, so my turnover might naturally drop beneath the threshold anyway.

“It’s a strange kind of middle ground that I’m in, and anyone I turn to for advice just shrugs their shoulders and says that we’ll find out soon enough.”

Reducing one’s turnover could make sense for some small business owners when they realise how much time and effort they will have to put into record-keeping and filing returns, although everyone should document cashflow from now on in any case.

And there is that word to which so many in other countries turn to in a bid to circumvent the law: cash. How often have we heard about discounts for cash? No paper trail, no records, no questions asked – could the same thing end up happening in the GCC?

“It is known that in countries that have VAT there has always been a thriving cash economy where the customer pays in cash, avoiding the addition of VAT, and the tradesperson doesn’t declare the income through their books,” Ms Bobker said.

“The saving by this illegal action is significantly more than it would be in the UAE where there is only VAT at 5 per cent and no income tax, as opposed to places with both VAT and income tax in double figures.”

She pointed out that there were plenty of small businesses in the UAE with turnovers below the Dh385,000 threshold, and that these are not obliged to register unless that income climbs.

“If a business has not registered they are not permitted to add VAT to their prices or invoices,” Ms Bobker said.

“They will, however, have to pay the VAT on anything they purchase themselves, just as any consumer will.”

She said one issue her company had already picked up on was small companies that legitimately do not need to register being asked for a Tax Registration Number when providing a service to a larger company.

“As they cannot provide this, they are having issues in dealing with some organisations. It seems that there are a few accounts departments not fully au fait with the rules and how they apply to all.”

For media executive and parttime DJ Mandy Witham, the waters are still muddier than she would like.

“A lot of singers, DJs and creatives in the UAE have full-time jobs and work part time in the entertainment industry, and I know a lot of them have no idea how VAT will affect them or what they should do,” Ms Witham said.

“I have a legitimate company and the contracts I have don’t take me above the VAT threshold, so I’m not charging VAT at the moment, but I’ll start keeping accounts from January 1 in case they are needed.”