If you’re a VAT registered trader in the United Kingdom or other vat-enabled eu country then precise vat calculations are a must for perfect vat accounting. All countries that have embraced vat use various vat rates on different services and goods, and you also need to calculate each vat rate precisely so as to file proper vat returns and also give the correct amount of vat vatnumbers tax.
In the UK, all vat rules are issued by HM Revenue and Customs or hmrc vat department. Hmrc has classified all taxable and vat exempt services and goods into 14,000 classifications. Thus, any products or services that you sell or buy is likely to fall under one of these classifications. Most of these services and goods fall under the standard vat rate of 17.5% that is slated to increase to 20% from January 4, 2011 onwards. Other services and goods fall under the lower vat rate of 5% while a select few come under the zero vat rate. There are also certain services and goods like those associated with charitable events, among others that fall under the vat exempt scheme where no vat can be added or claimed back.
Your vat calculations will begin once you know the appropriate vat rate of every of the products and services. For example, if you sell a pair of shoes to the customers for ?200 without vat then at 17.5% vat, your vat amount is going to be ?35 whilst the total amount of your vat invoice including vat will be ?235. Similarly, let’s say you sell a product for ?50 that draws 5% vat rate then the vat amount on that product will be ?2.50 while the total amount including vat is going to be ?52.50. It is very important to understand your basic product or service cost, your vat cost and your total price inclusive of vat so that you can bill your clients at the most effective rates whilst filing your vat returns without creating any calculation errors.
Calculating the right amount of vat can also be vital when you make application for vat refunds. You would need to do this if your services or goods are imported into the UK from the other eu country that has already collected vat on them. In such a case, you would need to apply for vat reclaim for getting back the money already paid in the country of origin. You need to hire an expert vat agent so that chances of any miscalculations are minimized. Your vat agent can also take overall vat calculations so that all your vat returns and vat refunds are handled in the stipulated time frame and that too without calculation mistakes. The hmrc vat department offers various vat accounting schemes such as the flat rate scheme, and in this type of case different calculation methods will need to be employed.
Although vat isn’t a very complex tax method, you still require calculations that are able to separate your basic costs from taxes. This will allow you to purchase and sell your services and goods after calculating proper profits. Since you also have to file regular vat returns and might also need to apply for vat refunds, precise vat calculations will allow you to stay on the right side of the vat law.