When you start issuing vat invoices to the clients then accurate vat calculation can help you calculate exact vat rates. Calculating vat rates is very easy and you will need to display all of your calculations within your vat invoices as well as your vat returns too.
If you are located 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 within the past Year. This could result in issuance of vat invoices by you to all your future clients. Your vat invoice would need to mention your vat number along with vat rates alongside 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 products or services as decided by HM Revenue and Customs or hmrc vat department that manages every aspect of vat in the UK.
There are actually 14,000 vat classifications provided by hmrc and if 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 if 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 is another lower rate of 5% that is also applicable on certain children?s goods and other services and also a zero vat rate on specific services and goods. Thus, in case a certain product is taxed at 17.5% then your calculations will have to be based on that vat rate only.
As an example, let’s say you sell an item at ?100 to a client that draws vat at 17.5% then your vat calculations will need to display the vat rate, i.e. ?17.50 after the product rate and also the total amount 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 services or goods imported by you to the UK might be claimed back through a vat reclaim form which also has to calculate the vat amount paid. It is possible to 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 likely need calculations of various 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 when compared to the other schemes. You will additionally need to learn on the way to calculate vat amounts from vat exclusive and vat inclusive prices so as to get the precise amount of vat.
Accurate calculation of vat is very important while buying or selling goods that are subject to vat tax. These amounts will have to be reflected within your purchases, sales, vat returns, and vat refunds too. Your business will run smoothly while hmrc may also remain happy with you once your vat calculation is accurate and clear in your vat documents and books.