If you are a VAT registered trader in the United Kingdom or any 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 goods and services, and you have to calculate each vat rate precisely in order to file proper vat returns and also pay the correct amount of vat tax.
In the United Kingdom, all vat rules are from 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 product or service which you purchase or sell is bound to fall under one such classifications. Many of these goods and services come under the regular vat rate of 17.5% that is slated to rise to 20% from January 4, 2011 onwards. Other services and goods fall under the lower vat rate of 5% while a select few fall under the zero vat rate www.vatregistrationnumber.com. There are also certain services and goods like those related to 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 when you know the appropriate vat rate of each one of your products and services. For instance, if you are selling a set of shoes to the customers for ?200 without vat then at 17.5% vat, your vat amount will be ?35 while the total amount of your vat invoice including vat is going to be ?235. Similarly, let’s say you sell a product for ?50 that draws 5% vat rate then the vat amount on that product is going to be ?2.50 while the total amount inclusive of vat is going to be ?52.50. It is crucial to understand your basic products or services cost, your vat cost as well as your total price inclusive of vat so that you can bill your clients in the best possible rates whilst filing your vat returns without creating any calculation errors.
Calculating the correct amount of vat can also be vital when you make application for vat refunds bonuses. You would need to do that if your services or goods are imported to the UK from any other eu country which has already collected vat in it. In such a case, you would need to make application for vat reclaim to get your money back already paid in the nation of origin. You should hire an expert vat agent so that probability of any miscalculations are minimized. Your vat agent can also take overall vat calculations in order that all your vat returns and vat refunds are handled within the stipulated time period and that too without any calculation mistakes. The hmrc vat department also offers various vat accounting schemes including the flat rate scheme, and in such a case different calculation methods will have to be employed.
Although vat is not a very complex tax method, you will still require calculations that are able to separate your basic costs from taxes. This will allow you to trade your services and goods after calculating proper profits. Since you will also need to file regular vat returns and might also have to apply for vat refunds, precise vat calculations will allow you to remain on the right side of the vat law.