Once you start issuing vat invoices to the 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.
If you are located in the UK you would then have converted into a VAT registered trader as soon as your taxable sales might have reached the vat threshold figure of 70,000 pounds within the past 12 months. This would 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 which you have sold to the 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 UK.
There are 14,000 vat classifications given by hmrc and if you have trouble in slotting your products or services in 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% 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 and other services and also 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.
For example, if you sell an item 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 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 within your vat returns. Similarly any vat already paid on goods or services imported by you into the UK can be claimed back through a vat reclaim form that also needs to calculate the vat amount paid. You can easily put in a vat accounting software package on your desktop in order to accurately calculate vat on each vat invoice since mistakes won’t be looked at 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 choose since the flat rate scheme will call for 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 so as to get the exact amount of vat.
Accurate calculation of vat is extremely important while buying or selling items that are governed by 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 will also remain happy with you once your vat calculation is accurate and clear in your vat documents and books.