If you are a VAT registered trader in the UK or any other vat-enabled eu country then precise vat calculations really are a must for perfect vat accounting. All countries which have embraced vat use various vat rates on different services and goods, and you also need to calculate each vat rate precisely so as to file proper vat returns as well as give the correct amount of vat tax.
In the United Kingdom, all vat rules are issued by HM Revenue and Customs or hmrc vat department. Hmrc has classified all taxable and vat exempt goods and services into 14,000 classifications. Thus, any products or services that you sell or buy is bound to come under one such classifications. Most of these services and goods fall under the regular vat rate of 17.5% that is slated to increase to 20% from January 4, 2011 onwards. Other services and goods fall under the lower vat rate of 5% while a select few fall under the zero vat rate vat registration number. Additionally, there are certain services and goods such as those associated with charitable events, among others that come under the vat exempt scheme where no vat is usually added or claimed back.
Your vat calculations will start once you know the correct vat rate of each one of your goods and services. For example, if you are selling a pair of shoes to your customers for ?200 without vat then at 17.5% vat, your vat amount is going to be ?35 while the total amount of your vat invoice including vat is going to be ?235. Similarly, let’s say you sell an item for ?50 that draws 5% vat rate then the vat amount on that product is going to be ?2.50 whilst the total amount inclusive of vat will be ?52.50. It is crucial to know your basic product or service cost, your vat cost and your total cost including vat to be able to bill your customers in the most effective rates whilst filing your vat returns without making any calculation errors.
Calculating the right amount of vat is also vital whenever you make application for vat refunds source. You would need to do that in case your goods or services are imported to the UK from the other eu country which has already collected vat on them. When this occurs, you would need to make application for vat reclaim to get your money back already paid in the country of origin. You should hire an expert vat agent so that chances of any miscalculations are minimized. Your vat agent could also take overall vat calculations in order that all your vat returns and vat refunds are handled in the stipulated time frame and that too without calculation mistakes. The hmrc vat department 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 will still require calculations that are able to separate your basic costs from taxes. This will likely allow you to purchase and sell your services and goods after calculating proper profit margins. As you also have to file regular vat returns and might also need to make an application for vat refunds, precise vat calculations will allow you to stay on the appropriate side of the vat law.