If you’re a VAT registered trader in the United Kingdom or 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 goods and services, and you 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 services and goods into 14,000 classifications. Thus, any product or service which you purchase or sell is likely to fall under one such classifications. Most of these goods and services fall under the standard vat rate of 17.5% that is slated to rise to 20% from January 4, 2011 onwards. Other services and goods come under the lower vat rate of 5% while a select few come 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 fall under the vat exempt scheme where no vat may be added or claimed back.
Your vat calculations will begin when you know the correct vat rate of every of your products and services. For instance, if you sell a set of shoes to your 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 an item for ?50 that draws 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 so that you can bill your customers in 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 whenever you make application for vat refunds helpful hints. You would need to do this if your goods or services are imported into the UK from any other eu country that has already collected vat in it. In such a case, you should make application for vat reclaim to get back the money 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 can also take overall vat calculations in order that all your vat returns and vat refunds are handled within the stipulated time frame and that too without any 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 allow you to purchase and sell your services and goods after calculating proper profit margins. Since you also have to file regular vat returns and may also have to make an application for vat refunds, precise vat calculations will help you remain on the appropriate side of the vat law.