When you start issuing vat invoices to the clients then accurate vat calculation will help you calculate exact vat rates. Calculating vat rates is very simple and you will have to display all of your calculations in your vat invoices and your vat returns too.
In case you are located in the UK you would then have turned into a VAT registered trader once your taxable sales would 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 would need to mention your vat number together with vat validation vat rates next to your goods or services which you have sold to your 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 all aspects of vat in the United Kingdom.
There are 14,000 vat classifications provided by hmrc and if you have trouble in slotting your goods and services in the right classification then you certainly should appoint an expert vat agent with complete knowledge on uk vat rules as well as eu vat rules in the event you import goods from any eu country. In the United Kingdom 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% that is also applicable on certain children?s goods as well as 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 according to that vat rate only.
For example, let's say you sell a product at ?100 to a client that attracts 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 quantity of the sale including vat, i.e. ?117.50, the final value of your vat invoice. These amounts must also be calculated and summed up in your vat returns. Similarly any vat already paid on services or goods imported by you into the UK might be claimed back through a vat reclaim form that also has to calculate the vat amount paid. It is possible to install a vat accounting software program on your desktop so as to accurately calculate vat on each vat invoice since mistakes will not be viewed kindly by the hmrc vat department.
Your vat returns will also need calculations of varied vat amounts paid and calculated. These calculations will also differ on the vat scheme which you opt for because the flat rate scheme will require different calculations as 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 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 business will run smoothly while hmrc will also remain happy with you only once your vat calculation is accurate and clear in all your vat documents and books.