Once you start issuing vat invoices to your 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 and your vat returns too.
In case you are located 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 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 together with vat rates next to your services or goods which you have sold to your clients. To be able to calculate vat you need to know the classification of your goods and services as decided by HM Revenue and Customs or hmrc vat department that manages all aspects of vat in the UK.
There are actually 14,000 vat classifications provided by hmrc and if you’ve trouble in slotting your products or services within the right classification then you certainly 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% which will soon increase to 20% from January 4, 2011. There’s another reduced rate of 5% which is also applicable on certain children?s goods and other services along with 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 according to that vat rate only.
As an example, if you sell a product at ?100 to your client that attracts vat at 17.5% in that case your vat calculations will need to display the vat rate, i.e. ?17.50 following the product rate as well as the total quantity of the sale including vat, i.e. ?117.50, which is 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 into the UK might be claimed back via a vat reclaim form that also needs to calculate the vat amount paid. You can easily install a vat accounting software package on your computer 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 also need calculations of various vat amounts paid and calculated. These calculations may also differ on the vat scheme that you opt for since the flat rate scheme will require different calculations as compared to the other schemes. You will also need to read on how to calculate vat amounts from vat exclusive and vat inclusive prices 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 need to be reflected within your purchases, sales, vat returns, and vat refunds too. Your business will operate correctly while hmrc will also remain pleased with you when your vat calculation is accurate and clear in all your vat documents and books.