Once 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 your calculations in 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 would 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 along with vat rates next to your goods or services which you have sold to the clients. In order 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 every aspect of vat in the United Kingdom.
There are 14,000 vat classifications given by hmrc just in case you have trouble in slotting your goods and services within the right classification then you should appoint an expert 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 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 services and goods. Thus, if a certain product is taxed at 17.5% then your calculations will have to be according to that vat rate only.
For example, if you sell an item at ?100 to a client that attracts vat at 17.5% then your vat calculations will need to display the vat rate, i.e. ?17.50 after 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 must also be calculated and summed up within your vat returns. Similarly any vat already paid on services or goods imported by you into the UK can 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 desktop in order 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 will also differ on the vat scheme which you choose because the flat rate scheme will call for different calculations as compared to the other schemes. You will also need to read on how to calculate vat amounts from vat exclusive and vat inclusive prices to get the precise amount of vat.
Accurate calculation of vat is extremely important while buying or selling goods that are governed by vat tax. These amounts will have to be reflected within your purchases, sales, vat returns, and vat refunds too. Your business will operate correctly while hmrc will also remain happy with you when your vat calculation is accurate and clear in your vat documents and books.