When you start issuing vat invoices to the clients then accurate vat calculation will help you calculate exact vat rates. Calculating vat rates is quite simple and you will have to display all of your calculations in your vat invoices and your vat returns too.
In case you are based 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 in the past Year. This could result in 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 alongside your goods or services that you have sold to the 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 every aspect of vat in the United Kingdom.
There are actually 14,000 vat classifications provided by hmrc and if you have trouble in slotting your products or services within the right classification then you should appoint an expert 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 regular rate of 17.5% which will soon increase to 20% from January 4, 2011. There is another lower rate of 5% which 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% in that case your calculations will need to be based on that vat rate only.
For example, if you sell a product at ?100 to your 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 quantity of the sale including vat, i.e. ?117.50, the final value of your vat invoice. These amounts will also need to be calculated and summed up in your vat returns. Similarly any vat already paid on goods or services imported by you to the UK might be claimed back via a vat reclaim form that also has to calculate the vat amount paid. You can easily install a vat accounting software package on your desktop 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 likely 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 when compared to the other schemes. You will also need to read on how to calculate vat amounts from vat exclusive and vat inclusive prices to get the precise amount of vat.
Accurate calculation of vat is very important while selling or buying goods that are governed by vat tax. These amounts will have 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 when your vat calculation is accurate and clear in all your vat documents and books.