When you start issuing vat invoices to the 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 as well as your vat returns too.
In case you are based in the UK you would then have converted into a VAT registered trader once your taxable sales might have reached the vat threshold figure of 70,000 pounds in the past Year. This could result in issuance of vat invoices by you to all of your future clients. Your vat invoice would need to mention your vat number together with vat validation vat rates next to your services or goods that you have sold to the clients. To be able to calculate vat you should 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 United Kingdom.
There are 14,000 vat classifications provided by hmrc and if you’ve trouble in slotting your goods and services within the right classification you then 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 is another reduced rate of 5% that 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% in that case your calculations will have to be based on that vat rate only.
For example, let’s say you sell a product at ?100 to your client that draws 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 and also 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 in your vat returns. Similarly any vat already paid on goods or services imported by you into the UK might 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 desktop in order to accurately calculate vat on each vat invoice since mistakes will not be looked at 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 since the flat rate scheme will require different calculations as compared to the other schemes. You will also need to learn on how 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 selling or buying 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 happy with you only when your vat calculation is accurate and clear in your vat documents and books.