Accurate vat calculation can help you calculate exact vat rates
When you start issuing vat invoices to your clients then accurate vat calculation will help you calculate exact vat rates. Calculating vat rates is quite simple and you will need to display all of your calculations in 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 in the past Year. This would 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 services or goods that you have sold to your clients. In order 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 all aspects of vat in the UK.
There are 14,000 vat classifications provided by hmrc just in case you have trouble in slotting your products or services within the right classification then you should appoint a professional vat agent with complete knowledge on uk vat rules and even eu vat rules if you import goods from any eu country. In the UK vat is spread into three slabs, namely the standard rate of 17.5% which will soon increase to 20% from January 4, 2011. There’s another lower rate of 5% which is also applicable on certain children?s goods as well as 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 according to that vat rate only.
As an example, if you sell an item 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 following 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 within 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 which also needs 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 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 may also differ on the vat scheme which you opt for because the flat rate scheme will call for different calculations as compared to the other schemes. You will also 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 enterprise will operate correctly while hmrc may also remain happy with you once your vat calculation is accurate and clear in your vat documents and books.