Based on their experience managing various clients, CYAUSE, our community member from Cyprus, has observed that many clients, especially those working with an accountant for the first time, often fall into common accounting mistakes. Interestingly, even accountants can make frequent errors, which CYAUSE notices when they take over accounting responsibilities from other service providers.
Let’s explore some of the most prevalent pitfalls and common accounting mistakes encountered by both clients and accountants.
Improperly issued invoices
Companies or individuals registered for VAT are required to charge their clients VAT. The applicable VAT rate depends on factors such as:
- The nature of the business (i.e., the service or product provided)
- The customer’s location (EU member state or non-EU member state)
- Whether the customer is registered for VAT
- If goods are delivered directly to the customer or if a third country (EU member state or non-EU member state) is involved.
However, as one of the many common accounting errors, clients often overlook these factors, unaware of their significance and the potential consequences of such oversights. For example, issuing an invoice to an EU resident (other than Cyprus, where different VAT rates apply: 19%, 9%, 5%, or exempt) who is also VAT-registered should not include VAT, as it falls under the EU VAT Reverse Charge Regulation. Failure to inform their accountant promptly can lead to penalties related to VAT returns (filed quarterly) and VIES declarations (for sales to other EU states), necessitating submission or revision.
Missing VAT number leading to additional work
This issue is specific to clients who are registered for VAT. They often neglect to provide their VAT number to suppliers, resulting in them being charged VAT unnecessarily in situations where the reverse charge could apply.
Omitting the VAT number on invoices complicates matters for the accountant, as purchases should be recorded under the Reverse Charge Regulation. Consequently, the accountant must declare these purchases differently to include them in the VAT return. A common approach is to declare the entire purchase amount, as no VAT can be claimed from abroad.
Not knowing when to register for VAT
Failing to understand when VAT registration is necessary is another of the common accounting mistakes that can lead to legal and financial consequences. For instance, in Cyprus, the common reasons for VAT registration include:
- Sales exceeding the €15,600 threshold
- Issuing invoices to other EU member states
- Receiving services/products subject to the Reverse Charge, exceeding €15,600
- Receiving goods from other EU members, exceeding €10,251.66
Clients should keep their local accountants informed about issued sales invoices to ensure timely VAT registration. Not every business must register for VAT; exceptions exist for certain business types. Sharing sales invoices promptly with the accountant (via Dropbox, OneDrive, Google Drive) enables immediate guidance. Note: Companies or self-employed individuals can opt for voluntary VAT registration if they wish.
Penalties from non-compliance
A crucial aspect that demands attention is a company’s or self-employed individual’s obligations. Key obligations include:
- Taxes and VAT payments
- Social insurance contributions
- Submission of annual report (financial statements)
- Other local matters, e.g. the annual levy payment to the Cyprus Registrar of Companies
Failure to prioritize these obligations can result in penalties, investigations by authorities, additional accounting support (incurring extra fees), and a waste of time and resources for both the client and the accounting firm. In severe cases, non-compliance can lead to legal action and even imprisonment, especially if VAT or Social Security Contributions remain unpaid. Ignoring these responsibilities is one of the most serious common accounting mistakes that can have long-term repercussions.
Old accounting records due to poor organization or missed obligations
Clients often provide accounting records from previous quarters (for VAT-registered clients) or even prior years. This happens when clients delay payments or if the payment falls into the next year. For instance, an invoice dated 20/12/20XX might be paid in January of the following year.
In some cases, clients may submit records that are 3-4 years old. This usually results from poor organization, leading to missed business obligations. Such practices affect both the Financial Statements and the taxes payable based on profits. Including expenses or sales from previous years in the current year—or failing to include them—distorts the company’s or individual’s performance.
If amounts are significant, the accountant may need to make adjustments, affecting previous years’ accounting, audits, tax calculations, and submissions to authorities. It is evident that it’s better to stay organized and compliant with obligations than to waste time, effort, and money correcting avoidable mistakes.
Founded in 2011 yet having over 25 years of experience, CYAUSE Audit Services engages a dynamic team of auditors, accountants and tax experts who provide services to multiple international companies and high net worth individuals from all over the world.
Website:Â www.cyprusaccountants.com.cy
