Precise vat calculations are a must for perfect vat accounting

If you’re a VAT registered trader in the United Kingdom or other vat-enabled eu country then precise vat calculations are a must for perfect vat accounting. All countries which have embraced vat use various vat rates on different goods and services, and you have to calculate each vat rate precisely in order to file proper vat returns and also give the correct amount of vat tax.

In the UK, all vat rules are issued by HM Revenue and Customs or hmrc vat department. Hmrc has classified all taxable and vat exempt goods and services into 14,000 classifications. Thus, any products or services that you purchase or sell is likely to come under one of these classifications. Many of these goods and services fall under the standard vat rate of 17.5% which is slated to increase to 20% from January 4, 2011 onwards. Other services and goods come under the lower vat rate of 5% while a limited number come under the zero vat rate vatregistrationnumber. Additionally, there are certain services and goods like those associated with charitable events, amongst others that come under the vat exempt scheme where no vat is usually added or claimed back.

Your vat calculations will begin when you know the appropriate vat rate of every of your goods and services. For example, if you sell a pair of shoes to the customers for ?200 exclusive of vat then at 17.5% vat, your vat amount is going to be ?35 whilst the total amount of your vat invoice including vat is going to be ?235. Similarly, let’s say you sell an item for ?50 that attracts 5% vat rate then your vat amount on that product will be ?2.50 while the total amount inclusive of vat will be ?52.50. It is very important to know your basic product or service cost, your vat cost as well as your total cost inclusive of vat to be able to bill your clients at the best possible rates whilst filing your vat returns without creating any calculation errors.

Calculating the right amount of vat can also be vital when you make application for vat refunds read here. You would need to do that in case your goods or services are imported to the UK from the other eu country which has already collected vat on them. When this occurs, you should make application for vat reclaim for getting your money back already paid in the country of origin. You should hire a specialist vat agent so that chances of any miscalculations are minimized. Your vat agent could also take overall vat calculations in order that all your vat returns and vat refunds are handled in the stipulated time period and that too without calculation mistakes. The hmrc vat department offers various vat accounting schemes including the flat rate scheme, and in such a case different calculation methods will need to be employed.

Although vat isn’t a very complex tax method, you will still require calculations that manage to separate your basic costs from taxes. This will likely permit you to trade your services and goods after calculating proper profit margins. Since you will also need to file regular vat returns and might also need to apply for vat refunds, precise vat calculations will allow you to remain on the right side of the vat law.