Once you start issuing vat invoices to the clients then accurate vat calculation will help you calculate exact vat rates. Calculating vat rates is very simple and you will have to display all your calculations within 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 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 of your future clients. Your vat invoice will have to mention your vat number together with vat rates alongside your services or goods that you have sold to your clients. To be able to calculate vat you should 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 United Kingdom.
There are 14,000 vat classifications provided by hmrc and if you’ve trouble in slotting your products or services in the right classification then you certainly should appoint an expert vat agent with complete knowledge on uk vat rules as well as eu vat rules if you import goods from any eu country. In the UK vat is spread into three slabs, namely the standard rate of 17.5% which will soon increase to 20% from January 4, 2011. There’s another reduced rate of 5% that is also applicable on certain children?s goods as well as other services along with a zero vat rate on specific services and goods. Thus, if a certain product is taxed at 17.5% in that case your calculations will have to be based on that vat rate only.
As an example, let’s say you sell a product at ?100 to a client that attracts vat at 17.5% then your vat calculations will have to display the vat rate, i.e. ?17.50 following 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 via a vat reclaim form that also has to calculate the vat amount paid. You can easily put in a vat accounting software package on your desktop so as 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 varied vat amounts paid and calculated. These calculations will also differ on the vat scheme which you choose because the flat rate scheme will require different calculations as compared to the other schemes. You will also need to learn on how to calculate vat amounts from vat exclusive and vat inclusive prices 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 need to be reflected in your purchases, sales, vat returns, and vat refunds too. Your enterprise will run smoothly while hmrc may also remain happy with you when your vat calculation is accurate and clear in all your vat documents and books.