Get the right vat formula for calculating various vat rates

With most European countries shifting over to vat or value added tax for collecting tax on goods and services it is important that you get the right vat formula for calculating various vat rates. For example, if you are a vat registered trader in the UK that has also embraced vat then calculating correct vat rates is imperative while making a vat invoice, filing vat returns or even when applying for vat refunds.

All matters related to vat, customs and excise duties in the UK are handled by Her Majesty’s Revenue and Customs department or hmrc. This department has ushered all types of goods and services into around 14,000 classifications that fall into various vat rates. While some goods and services fall into the standard vat rate of 17.5% that will increase to 20% after January 4, 2011, others fall into the reduced vat rate of 5%. Still others, related to children, hospitals or gambling fall into the zero rate or vat exempt category while a few simply fall outside the vat net.

Thus, you will firstly need to know the classification of a particular product or service under which your vat rates fall before you can apply the corresponding vat formula. For example if you are selling a coat for £100 pounds exclusive of vat then you will need to calculate the amount of vat to be charged on the coat. If the coat attracts standard vat rates then you will need to calculate 17.5% over the basic rate and then add the vat rate to come up with the gross rate. In this case, you vat rate would be £17.50 being 17.5% over £100 and the total of your vat invoice will be £117.50. However, you might also need to calculate the amount of vat from any amount that displays a vat inclusive rate, especially when you file your vat returns where you will be required to show vat rates separately.

Thus, your formula for the same example as above would be to take the vat inclusive amount, i.e. £117.50 and divide it by 1.175, which in turn will give you the vat exclusive price of £100 and the vat amount as £17.50, which is the remainder of vat inclusive price minus the vat exclusive price. However, this formula of 1.175 will change from January 4, 2011 onwards when the standard vat rates rise and the formula to calculate vat rates on reduced vat goods and services too will be different.

You can easily ask your vat agent to provide you with the correct formula to calculate vat or even visit the internet where you can download vat calculators for various eu countries including the UK. In addition, your vat agent should also be an expert in uk vat and eu vat rates so that all your vat returns and vat refunds too are filed only with the help of correct formulae. You can also visit the hmrc vat website to learn more about calculating vat rates as well as to use various other online vat services offered by hmrc to make your life easier.

Vat is a very simple method of paying and collecting taxes although you first need to get the hang of calculating vat rates correctly and quickly before you can become comfortable within the system. You should ensure that you get the right vat formula for calculating various vat rates so that your vat invoices, vat returns and vat reclaims remain within the boundaries of vat rules.

Knowing about vat exempt goods and services can save a lot of money

If you are a trader, a manufacturer or any other organization including a charitable one in a eu country that has adopted vat then knowing about vat exempt goods and services can save a lot of money. If you are located in the UK then there are several goods and services that are exempt from collecting or paying any vat and you should keep an eye out on any exemption that affects your business or organization if you want to save money and remain on the right side of vat rules.

The UK has three vat rates roughly similar to most other eu countries that follow vat. The standard rate of vat in the UK is 17.5% followed by the reduced vat rate of 5%. Finally some goods and services attract zero vat rates while certain goods and services usually related to socio-economic sectors are exempt from any vat. The difference between zero vat and vat exemption is that while you can claim any vat previously paid on zero vat goods and service, it is usually not possible to go in for vat refunds on vat exempt goods and services, although there are a few exceptions. In the UK, it is HM Revenue and Customs or hmrc vat department that handles all issues related to vat and you will need to check on their 14,000 classifications to find out if any goods or services related to your business or organization falls under the exempt category.

For example, most betting activities in the UK including online and actual lottery sales are exempt from vat while so are bingo games, pool and games of chance. Sales of antiques or works of art too are exempt from vat. Most activities related to charity are also exempt although a few activities fall under the zero vat rate. Similarly, many medical services are exempt although some medical goods fall under the zero or reduced vat rate. Most education services along with parking garages also fall under the exempt category although books and magazines fall under the zero vat categories. Most insurance services along with select financial services are also vat exempt. Many public utility services including electricity, gas and heating oil attract reduced vat rates.

You should visit the hmrc vat website to look at the complete list of exemptions and should also hire a competent vat agent that has complete knowledge on uk vat as well as eu vat classifications so as to learn all about exempt goods and services. This would become even more crucial if you import or export goods or services that jump from one classification to another after manufacturing. For example while raw paper might attract a particular rate of vat, a finished book might fall under the zero vat category. In such a case, you could be entitled to a vat refund on vat paid on raw materials to lower your costs. If you are part of a charitable organization then although organizing a particular number of events in a year might be exempt from vat, certain types of income generated from that charitable event might not be exempt from vat.

All eu countries including the UK that follow vat usually have certain goods and services that are exempt from paying or collecting any vat. You should take all efforts to know all about vat exempt goods and services, and also about vat reclaiming rules so as to save money while remaining on the right side of the law.

In vat europe leads the way

Several countries around the globe have adopted vat or value added tax in a bid to increase tax revenues and the US too is thinking about adopting this system of collecting tax but in vat europe leads the way. Most European countries follow the system of vat and even have a common eu vat system that is to be followed by all member countries that have adopted vat.

European countries that have embraced vat include Poland, Germany, Spain, Greece, Sweden, the UK, Ireland, Portugal, Romania, and many more. Each european country requires traders to turn into vat registered traders before they can receive a vat certificate and issue vat invoices. Once a trader gets vat registration then the business also needs to account for input and output vat through regular vat returns that need to be filed at the required intervals based on the chosen vat scheme in that country.

The Eurpoean Commission or Europa monitors the overall implementation of vat in all vat enabled countries and has also issued various directives that guide member countries towards better integration in implementing vat. These directives also helps vat traders to apply for and receive vat refunds for vat already paid in another eu country. Each country also has its own version of vat invoice that still requires traders to display the vat rate, vat amount and total gross amount, although some countries are allowed to issue invoices in their own language. For example, in Poland, vat registered traders issue a faktura invoice, which is basically the same as a vat invoice issued by a similar trader in the UK, albeit in a different language.

While each country implements vat by following the common vat code, it also allows traders to go in for vat refunds on imported goods and services where vat has already been paid in the country of origin. With such rules of vat europe has made it easier for traders to avoid the problem of double taxation and recover the money from a member eu country within a period of 4 to 8 months. Most traders in vat enabled countries do employ a vat agent or consultant to help them calculate vat rates, file vat returns regularly, and apply for vat reclaim on their behalf. This enables them to pursue sales while leaving the taxation side to vat experts.

The European Commission has also instructed member countries to set standard vat rates between 15 to 25% while also trying to make them to arrive at a consensus in reduced vat rates as well as zero vat rates and vat exempt goods and services to reduce discrepancies between member countries. Several countries have also raised or are on the verge of raising vat rates in the coming year that were either lowered during the recession or simply in a bid to increase revenues.

Although vat has been slowly gaining popularity around the globe, the European Commission has ensured that their large flock of vat enabled European countries slowly gets in tune with each other as they try to follow a common code of vat. In vat europe truly leads the way in showing other countries as to how to successfully implement a common system of vat across geographical borders.

The chances of usa vat being implemented increases with deficit

The United States of America has continued with its version of Sales Tax system in taxing goods and services but the chances of usa vat being implemented increases with deficit levels rising beyond uncomfortable levels. Most of Europe along with several developed and developing countries have adopted vat for taxing goods and services, and the US is seriously thinking of embracing this method to raise vital tax revenues.

For years, the US has stuck to its version of Sales Tax or Retail Tax where the end user is the only one subjected to tax on goods and services. The tax rates in the US are also quite low and usually peak at around 13% while vat or value added tax rates in some countries are as high as 25%. In addition, while sales tax is applied only once, vat is applied each time goods or services change hands, although there are provisions for vat refunds in the system. However, with the yearly US budget deficit running clearly over a trillion dollars, and rising with each passing year, proponents of vat are getting aggressive on implementing vat in the country in the coming years.

On the other hand, politicians fear that implementing usa vat could raise prices and pose a problem for the already-burdened common man, and in turn lead to reduced consumption of goods and services. Thus, not many in the current administration are willing to pursue the idea of bringing vat into the country. Most people agree, though that vat does promise to raise revenues while plugging tax leaks to a great extent.

In case the US does implement vat just as it has been done in the UK or other European countries then traders will need to apply for vat registration once they cross over the vat threshold figure. Each vat registered trader will then need to make a vat invoice that clearly mentions the vat number and the applicable vat rates on goods and services. In addition, traders will also need to file regular vat returns and could claim back vat refunds for vat amounts already paid. Even though the system sounds complex, in reality, it is quite simple to follow once traders get the hang of it, even as the government reaps higher tax revenues with each passing transaction.

It might take several years for usa vat to ultimately be implemented in the country as politicians and economists try to explore other avenues to close the huge deficit. This includes cutting down on expenses or levying additional taxes on certain goods or certain sections of society. However, more people seem to be open to the idea of introducing vat into the US after looking at other countries that have managed to boost their tax revenues due to vat. Maybe, only time and an unbearable deficit could usher in vat into the USA within the next few years.

While most other countries including Europe have shifted to vat in a bid to collect more taxes on goods and services, the US has remained loyal to its own version of Sales Tax. However, growing deficit and an inability to control expenses could soon see usa vat being ushered into the country, especially if the powers-to-be decide to take a concrete step in that direction.

Claim reverse charge vat on services where vat has already been paid

If you are a vat registered trader in the UK then you can avoid the problem of double taxation on services utilized from foreign companies when you claim reverse charge vat on services where vat has already been paid. This vat procedure will allow you to first pay vat and then cancel it out so that your net cost does not increase.

If you are a trader that utilizes services of foreign companies, especially those located in vat-friendly eu countries then you might have already paid vat in those countries. On the other hand, you might also have received such services in the UK itself from a supplier located in a eu country. All these factors would end up boosting your expenses since you might end up paying vat on certain services including those related to land, property, intra EC-freight services, and other such services as defined by the HM Revenue and Customs or hmrc department in conjunction with the European Community simplification regulations.

If you have a little difficulty in interpreting these vat rules then you should enrol the services of a competent customs and excise customs vat agent with a wide reach in most eu countries that practise vat. Such an agent would surely understand all uk vat and eu vat regulations and could help you to claim reverse charge vat that might have already been paid to a foreign company located in another country including a vat-friendly eu country.

You can reclaim vat already paid for specified services while filing your vat returns itself. If you are in the UK then you will need to calculate and indicate the amount of vat paid in Box 1 of your vat return form. You will then need to specify the same amount in Box 4 of that return so that the amount stands cancelled. You will also need to specify the full amount of the supply in Box 6 and 7 of the vat return form so as to complete your reverse charge vat claim. However, you will need to convert the currency of any vat paid in a foreign country to sterling before you fill in the amounts in those boxes.

This reverse charge process is also known as tax shift and you can go in for such a vat reclaim only if you are a vat registered trader in the UK. In order to become a vat registered trader, your taxable sales need to cross over £70,000 in the previous 12 months although you can even apply before this vat threshold amount has been achieved. Once you start charging vat to your customers and file regular vat returns then any services rendered by you from a foreign company can be reclaimed back in future vat returns, provided you follow all necessary guidelines issued by hmrc vat department.

Although following vat rules are not very difficult, it is always better to opt for the services of a proficient vat agent that can handle all your vat requirements seamlessly. This will allow you to concentrate on increasing your business while your vat agent files for reverse charge vat and recovers your taxes that have already been paid for services rendered by a foreign company within or outside the UK.

Calculating net vat is very important to know your actual costs

If you sell goods or services in the UK or import them from other countries before selling them then calculating net VAT is very important to know your actual costs. This vat amount represents the actual vat paid or collected over the actual product or service and will need to be shown separately in your vat invoice as well as your vat returns.

Several eu countries including Germany, Italy, France, Poland, Sweden, etc have shifted over to vat or value added tax as a system of taxing products and services in a bid to avoid multiple taxation on goods and services. Vat also prevents tax evasion to a great extent as compared to earlier systems. However, if you are a trader or manufacturer that buys and sells goods under the vat system then you should certainly know about the tax component in your final costing of your goods and services.

It is thus important to calculate the net vat on each product or service so that you arrive at accurate costs as well as calculate your profits correctly. Each eu state or country has different vat rate slabs that attract different percentages of vat. For example, if your business is situated in the UK then you could be subject to a standard vat rate of 17.5% that will change to 20% after January 4, 2011. There is also a reduced vat rate of 5% on certain goods and services while some goods or services are either vat exempt or attract zero vat. The hmrc vat department or hm revenue and customs department has provided for 14,000 classifications that will ultimately decide on the exact vat amount on each product or service.

If you have sold a product for £100 excluding vat then you will need to add 17.5% vat provided the product attracts the standard vat rate. Your net vat rate will now be £17.50 while your gross amount including vat will be £117.50. The net rate of vat will have to be specified in your vat invoice as well as your vat returns too. However, in order to charge and collect vat you will have to get your own unique vat number that will have to be displayed on each vat document. You can turn into a vat registered trader by filling in an appropriate application vat form after your taxable sales have touched £70,000 in the past 12 months.

You can also claim the actual amount of vat paid on imported goods or services if they have already been paid in the country of origin. You should use the services of a competent vat, customs and excise duties agent or consultant that has complete knowledge of uk vat and eu vat rules, especially when you import goods and services from member eu countries that follow the system of vat. Although vat rates might differ in each country, the net vat rate will always be based on the actual percentage of vat on a product or service.

It is very important to know about each factor that contributes towards the cost of your product or service. This will allow you to earn the maximum amount of profits as well as keep a strict eye on direct and indirect expenses that affect your business. Calculating net vat is indeed very important to know your actual costs so that you can sell your products and services at optimum prices.