Once you start issuing vat invoices to the clients then accurate vat calculation can help you calculate exact vat rates. Calculating vat rates is very easy and you will have to display all your calculations within your vat invoices as well as your vat returns too.
In case you are located in the UK then you would have converted into a VAT registered trader once your taxable sales might have reached the vat threshold figure of 70,000 pounds within the past Year. 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 together with vat rates next to your services or goods which you have sold to your clients. In order to calculate vat you should know the classification of the goods and services as decided by HM Revenue and Customs or hmrc vat department that manages all aspects of vat in the United Kingdom.
There are actually 14,000 vat classifications provided by hmrc just in case you have trouble in slotting your goods and 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 reduced 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. Thus, in case a certain product is taxed at 17.5% in that case your calculations will have to be based on that vat rate only.
For example, let’s say you sell a product at ?100 to your client that draws vat at 17.5% then your vat calculations will need 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, 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 into the UK can be claimed back via a vat reclaim form that also has to calculate the vat amount paid. You can easily put in a vat accounting software package on your computer so as 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 will also differ on the vat scheme which you choose because the flat rate scheme will require different calculations as compared to the other schemes. You will additionally need to read on the way 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 need to be reflected within your purchases, sales, vat returns, and vat refunds too. Your business will operate correctly while hmrc may also remain pleased with you when your vat calculation is accurate and clear in all your vat documents and books.