Once you start issuing vat invoices to your 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 in your vat invoices as well as your vat returns too.
In case you are located in the UK then you would have turned into a VAT registered trader once your taxable sales would have reached the vat threshold figure of 70,000 pounds in the past Year vat number search. This would result in issuance of vat invoices by you to all of your future clients. Your vat invoice would need to mention your vat number along with vat rates alongside your goods or services that 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 14,000 vat classifications given by hmrc and if you have trouble in slotting your products or 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 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 is another reduced rate of 5% which is also applicable on certain children?s goods and other services and also a zero vat rate on specific services and goods read here. Thus, if a certain product is taxed at 17.5% then your calculations will need to be according to that vat rate only.
For example, if 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, 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 into the UK can be claimed back via a vat reclaim form that also needs to calculate the vat amount paid. It is possible to put in a vat accounting software program on your computer so as 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 which you opt for since the flat rate scheme will require different calculations as compared to the other schemes. You will also need to learn on the way to calculate vat amounts from vat exclusive and vat inclusive prices to get the exact amount of vat.
Accurate calculation of vat is extremely important while selling or buying items that are governed by vat tax. These amounts will need to be reflected within 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 your vat documents and books.