If you’re a VAT registered trader in the UK or other vat-enabled eu country then precise vat calculations are a must for perfect vat accounting. All countries that have embraced vat use various vat rates on different services and goods, and you also have to calculate each vat rate precisely in order to file proper vat returns and also give the proper amount of vat tax.
In the United Kingdom, all vat rules are from HM Revenue and Customs or hmrc vat department. Hmrc has classified all taxable and vat exempt services and goods into 14,000 classifications. Thus, any product or service that you purchase or sell is likely to come under one such classifications. Many of these services and goods come under the standard vat rate of 17.5% which is slated to increase to 20% from January 4, 2011 onwards. Other goods and services come under the lower vat rate of 5% while a limited number fall under the zero vat rate vatregistrationnumber. There are also certain services and goods like those related to charitable events, amongst others that fall under the vat exempt scheme where no vat can be added or claimed back.
Your vat calculations will begin once you know the appropriate vat rate of each of the goods and services. For instance, if you are selling a set of shoes to the customers for ?200 without vat then at 17.5% vat, your vat amount is going to be ?35 whilst the total amount of your vat invoice including vat will be ?235. Similarly, let’s say you sell a product for ?50 that attracts 5% vat rate then your vat amount on that product will be ?2.50 whilst the total amount inclusive of vat will be ?52.50. It is very important to know your basic products or services cost, your vat cost and your total cost inclusive of vat to be able to bill your customers at the most effective rates while also filing your vat returns without making any calculation errors.
Calculating the right amount of vat can also be vital when you make application for vat refunds check my source. You’ll have to do this in case your services or goods are imported to the UK from any other eu country that has already collected vat in it. In such a case, you would need to make application for vat reclaim for getting your money back already paid in the country of origin. You need to hire a specialist vat agent so that probability of any miscalculations are minimized. Your vat agent could also take overall vat calculations in order that all of your vat returns and vat refunds are handled within the stipulated time period and that too without any calculation mistakes. The hmrc vat department also offers various vat accounting schemes such as the flat rate scheme, and in such a case different calculation methods will need to be employed.
Although vat is not a very complex tax method, you still require calculations that are able to separate your basic costs from taxes. This will permit you to trade your services and goods after calculating proper profit margins. As you also have to file regular vat returns and may also need to make an application for vat refunds, precise vat calculations will help you stay on the appropriate side of the vat law.