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 need to display all of your calculations within your vat invoices as well as your vat returns too.
In case you are located in the UK you would then have turned into a VAT registered trader once your taxable sales would have reached the vat threshold figure of 70,000 pounds within the past Year. This would lead to 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 next to your services or goods that 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 all aspects of vat in the UK.
There are 14,000 vat classifications provided by hmrc just in case you’ve trouble in slotting your products or services in the right classification then you should appoint a professional 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 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 and also a zero vat rate on specific goods and services. Thus, in case a certain product is taxed at 17.5% then your calculations will have to be based on that vat rate only.
For example, if you sell a product at ?100 to your client that draws vat at 17.5% in that case your vat calculations will have to display the vat rate, i.e. ?17.50 after 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 services or goods imported by you into the UK might be claimed back through a vat reclaim form that also needs to calculate the vat amount paid. It is possible to install a vat accounting software package on your computer so as to accurately calculate vat on each vat invoice since mistakes will not 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 will 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 additionally need to read 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 very important while buying or selling items 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 run smoothly while hmrc will also remain happy with you when your vat calculation is accurate and clear in your vat documents and books.