Once you start issuing vat invoices to the clients then accurate vat calculation will help you calculate exact vat rates. Calculating vat rates is very simple and you will have to display all of your calculations within your vat invoices and your vat returns too.
In case you are based in the UK then you would have turned into a VAT registered trader as soon as your taxable sales might have reached the vat threshold figure of 70,000 pounds in the past Year. This would result in issuance of vat invoices by you to all of your future clients. Your vat invoice will have to mention your vat number along with vat rates next to your services or goods that you have sold to your clients. To be able to calculate vat you should know the classification of the goods and services as decided by HM Revenue and Customs or hmrc vat department that manages every aspect of vat in the UK.
There are actually 14,000 vat classifications given by hmrc and if you have trouble in slotting your products or services in the right classification then you 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 United Kingdom vat is spread into three slabs, namely the regular rate of 17.5% which will soon increase to 20% from January 4, 2011. There’s another lower rate of 5% which is also applicable on certain children?s goods as well as other services along with a zero vat rate on specific goods and services. Thus, in case a certain product is taxed at 17.5% in that case your calculations will need to be based on that vat rate only.
As an example, if you sell a product at ?100 to your client that draws vat at 17.5% in that case your vat calculations will need to display the vat rate, i.e. ?17.50 after the product rate and also the total amount of the sale including vat, i.e. ?117.50, the final value of your vat invoice. These amounts will also need to be calculated and summed up in your vat returns. Similarly any vat already paid on goods or services imported by you to the UK might be claimed back via a vat reclaim form that also needs to calculate the vat amount paid. You can easily put in a vat accounting software program on your computer so as to accurately calculate vat on each vat invoice since mistakes will not 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 will also differ on the vat scheme that you opt for since the flat rate scheme will call for different calculations when compared to the other schemes. You will additionally need to read on the way to calculate vat amounts from vat exclusive and vat inclusive prices so as to get the precise amount of vat.
Accurate calculation of vat is very important while selling or buying goods that are subject to vat tax. These amounts will have to be reflected in your purchases, sales, vat returns, and vat refunds too. Your enterprise will operate correctly while hmrc may also remain happy with you once your vat calculation is accurate and clear in all your vat documents and books.