Once 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 your calculations in your vat invoices and your vat returns too.
If you are located in the UK then you would have turned into a VAT registered trader once your taxable sales would have reached the vat threshold figure of 70,000 pounds within the past 12 months. This would result in issuance of vat invoices by you to all your future clients. Your vat invoice would need to mention your vat number along with vat rates next to your goods or services 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 and if you have trouble in slotting your goods and services in the right classification then you should appoint an expert 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% that 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 goods and services. Thus, if a certain product is taxed at 17.5% then your calculations will need to be based on that vat rate only.
For example, if 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 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 in your vat returns. Similarly any vat already paid on goods or services imported by you into the UK can be claimed back through a vat reclaim form that also has to calculate the vat amount paid. You can easily install a vat accounting software program on your computer so as 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 will also differ on the vat scheme that you opt for since 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 exact amount of vat.
Accurate calculation of vat is very important while buying or selling goods that are subject to 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 pleased with you only when your vat calculation is accurate and clear in all your vat documents and books.