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 have to display all your calculations within your vat invoices as well as your vat returns too.
If you are located in the UK you would then have converted into a VAT registered trader once your taxable sales would have reached the vat threshold figure of 70,000 pounds in the past 12 months vat number search. This would lead to issuance of vat invoices by you to all of your future clients. Your vat invoice would need to mention your vat number together with vat rates alongside your goods or services that you have sold to the clients. To be able to calculate vat you should know the classification of the products or 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 given by hmrc just in case you have trouble in slotting your products or services within 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 in the event 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’s another lower rate of 5% that is also applicable on certain children?s goods and other services along with a zero vat rate on specific services and goods learn more here. Thus, in case a certain product is taxed at 17.5% then your calculations will have to be based on that vat rate only.
As an 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 after 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 goods or services imported by you to the UK can be claimed back via a vat reclaim form that also has to calculate the vat amount paid. It is possible to put in a vat accounting software program on your desktop in order to accurately calculate vat on each vat invoice since mistakes won’t 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 call for different calculations as compared to the other schemes. You will additionally need to learn 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 extremely important while buying or selling goods that are subject to vat tax. These amounts will have to be reflected in your purchases, sales, vat returns, and vat refunds too. Your business will operate correctly while hmrc will also remain happy with you when your vat calculation is accurate and clear in all your vat documents and books.