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 have to display all of your calculations in your vat invoices and your vat returns too.
In case you are based in the UK then you would have converted into a VAT registered trader as soon as your taxable sales would have reached the vat threshold figure of 70,000 pounds in the past 12 months. This could lead to issuance of vat invoices by you to all 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 the clients. In order to calculate vat you need to know the classification of the products or 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 provided by hmrc just in case you’ve trouble in slotting your products or services in the right classification then you should appoint a professional vat agent with complete knowledge on uk vat rules and even eu vat rules if you import goods from any eu country. In the UK vat is spread into three slabs, namely the regular rate of 17.5% that 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 as well as other services and also a zero vat rate on specific services and goods. Thus, if a certain product is taxed at 17.5% then your calculations will have to be based on that vat rate only.
For example, let’s say you sell a product at ?100 to a client that attracts vat at 17.5% in that case your vat calculations will have to display the vat rate, i.e. ?17.50 following the product rate as well as 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 services or goods imported by you into the UK might be claimed back via a vat reclaim form which also has to calculate the vat amount paid. You can easily install a vat accounting software package on your desktop so as to accurately calculate vat on each vat invoice since mistakes will not be viewed kindly by the hmrc vat department.
Your vat returns will also need calculations of various 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 when compared to the other schemes. You will additionally need to learn on the way 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 very important while buying or selling items 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 run smoothly while hmrc may also remain pleased with you once your vat calculation is accurate and clear in all your vat documents and books.