When you start issuing vat invoices to the clients then accurate vat calculation will help you calculate exact vat rates. Calculating vat rates is quite simple and you will have to display all of your calculations within 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 would have reached the vat threshold figure of 70,000 pounds within 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 along with vat rates next to your services or goods which 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 every aspect of vat in the UK.
There are actually 14,000 vat classifications given 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 in the event 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 lower rate of 5% that is also applicable on certain children?s goods and other services along with a zero vat rate on specific services and goods. Thus, if 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 a product at ?100 to your 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 and also the total amount 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 within your vat returns. Similarly any vat already paid on services or goods imported by you into the UK can be claimed back through a vat reclaim form which also has to calculate the vat amount paid. It is possible to put in a vat accounting software package 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 likely need calculations of varied vat amounts paid and calculated. These calculations will also differ on the vat scheme that you choose since the flat rate scheme will require different calculations when compared to the other schemes. You will additionally need to learn on how to calculate vat amounts from vat exclusive and vat inclusive prices to get the exact amount of vat.
Accurate calculation of vat is extremely important while selling or buying items that are governed by vat tax. These amounts will have to be reflected within your purchases, sales, vat returns, and vat refunds too. Your business will run smoothly while hmrc may also remain pleased with you once your vat calculation is accurate and clear in all your vat documents and books.