Once you start issuing vat invoices to the clients then accurate vat calculation will help you calculate exact vat rates. Calculating vat rates is very easy 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 you would then have turned into a VAT registered trader once your taxable sales would have reached the vat threshold figure of 70,000 pounds in the past Year. This would lead to 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 next to your services or goods 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 provided by hmrc and if you’ve trouble in slotting your products or services in the right classification you then should appoint an expert 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 United Kingdom 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% 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, if a certain product is taxed at 17.5% in that case your calculations will need to be according to that vat rate only.
As an example, let’s say you sell a product at ?100 to your client that attracts vat at 17.5% in that case 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 has to calculate the vat amount paid. You can easily put in a vat accounting software package on your computer 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 varied vat amounts paid and calculated. These calculations may also differ on the vat scheme that 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 the way to calculate vat amounts from vat exclusive and vat inclusive prices to get the exact amount of vat.
Accurate calculation of vat is very important while buying or selling goods that are governed by vat tax. These amounts will need to be reflected within your purchases, sales, vat returns, and vat refunds too. Your enterprise will operate correctly while hmrc may also remain happy with you when your vat calculation is accurate and clear in all your vat documents and books.