If you are a VAT registered trader in the United Kingdom or any other vat-enabled eu country then precise vat calculations really are a must for perfect vat accounting. All countries that have embraced vat use various vat rates on different goods and services, and you also need to calculate each vat rate precisely in order to file proper vat returns as well as pay the correct amount of vat vatnumbers tax.
In the UK, all vat rules are issued by HM Revenue and Customs or hmrc vat department. Hmrc has classified all taxable and vat exempt services and goods into 14,000 classifications. Thus, any product or service which you sell or buy is bound to fall under one of these classifications. Many of these goods and services come under the regular vat rate of 17.5% which is slated to increase to 20% from January 4, 2011 onwards. Other services and goods fall under the reduced vat rate of 5% while a limited number fall under the zero vat rate. Additionally, there are certain goods and services such as those associated with charitable events, among others that fall under the vat exempt scheme where no vat is usually added or claimed back.
Your vat calculations will begin once you know the correct vat rate of every of your goods and services. For example, if you sell a set of shoes to your customers for ?200 without vat then at 17.5% vat, your vat amount will be ?35 while the total amount of your vat invoice including vat will be ?235. Similarly, if you sell an item for ?50 that attracts 5% vat rate then the vat amount on that product is going to be ?2.50 whilst the total amount including vat will be ?52.50. It is very important to understand your basic products or services cost, your vat cost and your total cost inclusive of vat so that you can bill your clients in the most effective rates while also filing your vat returns without making any calculation errors.
Calculating the right amount of vat is also vital whenever you make application for vat refunds. You’ll have to do that if your goods or services are imported into the UK from any other eu country that has already collected vat on them. When this occurs, you would need to make application for vat reclaim to get back the money already paid in the country of origin. You should hire a specialist vat agent to ensure that chances of any miscalculations are minimized. Your vat agent can also take over all vat calculations in order that all your vat returns and vat refunds are handled within the stipulated time frame and that too without calculation mistakes. The hmrc vat department also offers various vat accounting schemes including the flat rate scheme, and in such a case different calculation methods will need to be employed.
Although vat isn’t a very complex tax method, you still require calculations that manage to separate your basic costs from taxes. This will permit you to trade your goods and services after calculating proper profit margins. Since you will also need to file regular vat returns and might also need to apply for vat refunds, precise vat calculations will help you stay on the appropriate side of the vat law.