Let's say you sell services or goods in the United Kingdom or import them from other countries before selling them then calculating net VAT is very important to know your actual costs. This vat amount represents the exact vat paid or collected on the actual product or service and will have to be shown separately in your vat invoice together with your vat returns.
Several eu countries including Germany, Italy, France, Poland, Sweden, etc have shifted over to vat or value added tax as being a system of taxing services and products in a bid to avoid vatcheck multiple taxation on products or services. Vat also prevents tax evasion to a degree as compared to earlier systems. However, if you're a trader or manufacturer that buys and sells goods under the vat system you then should certainly know about the tax component within your final costing of the goods and services.
It's thus important to calculate the net vat on each product or service so that you arrive at accurate costs as well as calculate your profits correctly. Each eu state or country has different vat rate slabs that attract different percentages of vat. For example, if your business is situated in the United Kingdom then you could be governed by a regular vat rate of 17.5% that will switch to 20% after January 4, 2011. There's also a reduced vat rate of 5% on certain goods and services while many services or goods are generally vat exempt or attract zero vat. The hmrc vat department or hm revenue and customs department has provided for 14,000 classifications that will ultimately determine the exact vat amount on each service or product.
If you have sold a product for ?100 excluding vat then you will have to add 17.5% vat provided the product attracts the standard vat rate. Your net vat rate will now be ?17.50 while your gross amount including vat will be ?117.50. The net rate of vat will need to be specified by your vat invoice as well as your vat returns too. However, to be able to charge and collect vat you will have to get your own unique vat number which will need to be displayed on each vat document. You can turn into a vat registered trader by filling in an appropriate application vat form after your taxable sales have touched ?70,000 in the past 12 months.
You can also claim the actual amount of vat paid on imported goods or services should they have already been paid in the country of origin. You should use the assistance of a qualified vat, customs and excise duties agent or consultant that has complete knowledge of uk vat and eu vat rules, especially when you import goods and services from member eu countries that follow the system of vat. Although vat rates might differ in each country, the net vat rate will always be in accordance with the actual percentage of vat on the products or services.
It is very important to understand each component that contributes towards price of your products or services. This may enable you to generate the maximum level of profits and also keep a strict eye on direct and indirect expenses affecting your business. Calculating net vat is definitely very important to understand your actual costs to be able to sell your product or service and services at optimum prices.