Once you start issuing vat invoices to the clients then accurate vat calculation will help you calculate exact vat rates. Calculating vat rates is quite easy and you will have to display all your calculations in your vat invoices as well as your vat returns too.
If you are located in the UK you would then have turned into a VAT registered trader as soon as your taxable sales would 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 your future clients. Your vat invoice will have to mention your vat number along 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 every aspect of vat in the United Kingdom.
There are 14,000 vat classifications given 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 as well as eu vat rules if you import goods from any eu country. In the UK 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% which is also applicable on certain children?s goods and other services along with a zero vat rate on specific goods and services. Thus, if a certain product is taxed at 17.5% then your calculations will need to be according to that vat rate only.
As an example, if you sell an item at ?100 to a client that draws vat at 17.5% then your vat calculations will need to display the vat rate, i.e. ?17.50 after the product rate as well as the total amount of the sale including vat, i.e. ?117.50, which is 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 services or goods imported by you into the UK might be claimed back via a vat reclaim form that also needs to calculate the vat amount paid. You can easily install a vat accounting software program on your computer in order 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 opt for because 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 so as to get the precise amount of vat.
Accurate calculation of vat is extremely important while buying or selling items that are governed by vat tax. These amounts will need to be reflected in your purchases, sales, vat returns, and vat refunds too. Your enterprise will run smoothly while hmrc may also remain pleased with you once your vat calculation is accurate and clear in your vat documents and books.