Once you start issuing vat invoices to your clients then accurate vat calculation will help you calculate exact vat rates. Calculating vat rates is very easy and you will have to display all your calculations in your vat invoices as well as your vat returns too.
In case you are located in the UK you would then have converted into a VAT registered trader once your taxable sales might have reached the vat threshold figure of 70,000 pounds within the past 12 months. This would lead to issuance of vat invoices by you to all your future clients. Your vat invoice would need to mention your vat number together with vat rates alongside your goods or services that you have sold to your clients. To be able to calculate vat you need to know the classification of the goods and services as decided by HM Revenue and Customs or hmrc vat department that manages all aspects of vat in the UK.
There are actually 14,000 vat classifications given by hmrc and if you’ve trouble in slotting your goods and services in the right classification then you certainly should appoint an expert vat agent with complete knowledge on uk vat rules as well as eu vat rules in the event you import goods from any eu country. In the UK vat is spread into three slabs, namely the standard rate of 17.5% that will soon increase to 20% from January 4, 2011. There’s another lower rate of 5% that is also applicable on certain children?s goods and other services along with a zero vat rate on specific goods and services. Thus, if a certain product is taxed at 17.5% in that case your calculations will need to be according to that vat rate only.
For example, let’s say you sell a product at ?100 to your client that attracts vat at 17.5% in that case your vat calculations will have to display the vat rate, i.e. ?17.50 after the product rate and also the total quantity of the sale including vat, i.e. ?117.50, which is the final value of your vat invoice. These amounts must also be calculated and summed up in your vat returns. Similarly any vat already paid on services or goods imported by you into the UK can be claimed back through a vat reclaim form that also has to calculate the vat amount paid. It is possible to put in a vat accounting software program on your desktop in order to accurately calculate vat on each vat invoice since mistakes won’t be looked at kindly by the hmrc vat department.
Your vat returns will also need calculations of varied vat amounts paid and calculated. These calculations may also differ on the vat scheme which you opt for because the flat rate scheme will call for different calculations when compared to the other schemes. You will additionally need to learn on how to calculate vat amounts from vat exclusive and vat inclusive prices so as to get the exact amount of vat.
Accurate calculation of vat is extremely important while selling or buying items that are subject to vat tax. These amounts will have to be reflected within your purchases, sales, vat returns, and vat refunds too. Your business will run smoothly while hmrc may also remain happy with you only when your vat calculation is accurate and clear in all your vat documents and books.