Precise vat calculations are a must for perfect vat accounting

If you are a VAT registered trader in the UK or any 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 goods and services, and you need to calculate each vat rate precisely so as to file proper vat returns and also pay the correct amount of vat tax.

In the UK, 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 product or service that you purchase or sell is bound to fall under one of these 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 goods and services fall under the reduced vat rate of 5% while a select few fall under the zero vat rate. There are also certain goods and services such as those related to charitable events, among 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 correct vat rate of each of your products and services. For example, if you are selling a pair of shoes to your customers for £200 exclusive of vat then at 17.5% vat, your vat amount will be £35 while the total amount of your vat invoice including vat will be £235. Similarly, if you sell a product for £50 that attracts 5% vat rate then the vat amount on that product will be £2.50 while the total amount inclusive of vat will be £52.50. It is very important to know your basic product or service cost, your vat cost and your total cost inclusive of vat so that you can bill your customers at the best possible rates while also filing your vat returns without making any calculation errors.

Calculating the correct amount of vat is also vital when you apply for vat refunds. 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 on them. In such a case, you would need to apply 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 over all vat calculations so 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 also offers various vat accounting schemes including 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 manage to separate your basic costs from taxes. This will allow you to purchase and sell your goods and services after calculating proper profit margins. Since you will also need to file regular vat returns and might also have to apply for vat refunds, precise vat calculations will help you stay on the right side of the vat law.

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