Once you start issuing vat invoices to your clients then accurate vat calculation can help you calculate exact vat rates. Calculating vat rates is quite easy and you will need to display all your calculations in your vat invoices and your vat returns too.
In case you are based in the UK you would then have converted 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 12 months. 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 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 your 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’ve trouble in slotting your goods and services in the right classification you then should appoint a professional vat agent with complete knowledge on uk vat rules and even 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 reduced rate of 5% that is also applicable on certain children?s goods as well as other services along with a zero vat rate on specific services and goods. Thus, in case a certain product is taxed at 17.5% then your calculations will need to be according to that vat rate only.
As an example, if you sell an item at ?100 to a client that attracts vat at 17.5% then your vat calculations will have to display the vat rate, i.e. ?17.50 following the product rate as well as the total quantity of the sale including vat, i.e. ?117.50, which is the final value of your vat invoice. These amounts will also need to be calculated and summed up within your vat returns. Similarly any vat already paid on services or goods imported by you to 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 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 also need calculations of varied vat amounts paid and calculated. These calculations may also differ on the vat scheme which you opt for since the flat rate scheme will require different calculations as compared to the other schemes. You will additionally need to read 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 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 will also remain happy with you only when your vat calculation is accurate and clear in your vat documents and books.