When you start issuing vat invoices to your clients then accurate vat calculation can help you calculate exact vat rates. Calculating vat rates is very simple and you will need to display all your calculations within your vat invoices and your vat returns too.
If you are located 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 within the past Year. This could result in issuance of vat invoices by you to all of your future clients. Your vat invoice would need to mention your vat number along with vat validation vat rates alongside your services or goods which 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 United Kingdom.
There are actually 14,000 vat classifications given by hmrc just in case you have trouble in slotting your products or services in the right classification then you certainly should appoint a professional 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 regular rate of 17.5% which will soon increase to 20% from January 4, 2011. There’s another reduced rate of 5% which 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% then your calculations will need to be based on that vat rate only.
As an example, let’s say you sell a product at ?100 to a client that draws 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 goods or services imported by you to the UK can be claimed back through a vat reclaim form which also needs to calculate the vat amount paid. You can easily install a vat accounting software program on your computer so as to accurately calculate vat on each vat invoice since mistakes won’t be viewed kindly by the hmrc vat department.
Your vat returns will likely need calculations of varied vat amounts paid and calculated. These calculations will also differ on the vat scheme that you choose since the flat rate scheme will require different calculations when compared to the other schemes. You will also need to learn on how 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 extremely important while buying or selling 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 business will operate correctly while hmrc will also remain happy with you only once your vat calculation is accurate and clear in all your vat documents and books.