Once you start issuing vat invoices to the clients then accurate vat calculation will help you calculate exact vat rates. Calculating vat rates is quite easy and you will need to display all your calculations within your vat invoices and your vat returns too.
In case you are based in the UK then you would have turned into a VAT registered trader as soon as your taxable sales would have reached the vat threshold figure of 70,000 pounds in the past 12 months. 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 vatvalidation vat rates alongside your goods or services that you have sold to your clients. In order to calculate vat you should know the classification of your goods and 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 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 standard rate of 17.5% that will soon increase to 20% from January 4, 2011. There is another reduced rate of 5% which 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, in case a certain product is taxed at 17.5% in that case your calculations will need to be according to that vat rate only.
For example, if you sell a product at ?100 to your client that attracts vat at 17.5% in that case your vat calculations will have to display the vat rate, i.e. ?17.50 after the product rate as well as the total amount of the sale including vat, i.e. ?117.50, the final value of your vat invoice. These amounts will also need to be calculated and summed up in your vat returns. Similarly any vat already paid on goods or services 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 install a vat accounting software package on your desktop in order to accurately calculate vat on each vat invoice since mistakes will not 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 because the flat rate scheme will require different calculations when compared to the other schemes. You will additionally need to read on how 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 items that are subject to vat tax. These amounts will need to be reflected in your purchases, sales, vat returns, and vat refunds too. Your business will run smoothly while hmrc will also remain happy with you only when your vat calculation is accurate and clear in all your vat documents and books.