Calculating net vat is critical to understand your actual costs

Let’s say you sell goods or services in the United Kingdom 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 exact vat paid or collected over the actual service or product and definately will have 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 to vat or value added tax as a system of taxing services and products in a bid check vat number to avoid multiple taxation on products or services. Vat also prevents tax evasion to a degree as compared to earlier systems. However, if you are a trader or manufacturer that buys and sells goods under the vat system you then should certainly know of the tax component in your final costing of your goods and services.

It’s thus imperative that you calculate the net vat on each product or service so that you will come to accurate costs and also calculate your profits correctly. Each eu state or country has different vat rate slabs that attract different percentages of vat. For example, in case your organization is situated in the UK then you could be governed by a regular vat rate of 17.5% that will switch to 20% after January 4, 2011. There is also a reduced vat rate of 5% on certain products or services while some services or goods 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 could ultimately determine the actual vat amount on each service or product.

If you have sold a product for ?100 excluding vat then you will need to add 17.5% vat provided the item attracts the regular vat rate. Your net vat rate will be ?17.50 while your gross amount including vat will likely be ?117.50. The net rate of vat will have to be specified by your vat invoice as well as your vat returns too. However, in order to charge and collect vat you’ll have to get your own unique vat number that will have to be displayed on each vat document. It is possible to 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 exact amount of vat paid on imported services or goods should they have already been paid in the nation of origin. You should use the assistance 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 products or services from member eu countries that follow the system of vat. Although vat rates might differ in each country, the net vat rate will be based on the actual percentage of vat on a product or service.

It is very important to understand each component that contributes towards the cost of your products or services. This may enable you to earn the maximum amount of profits and also keep a strict eye on direct and indirect expenses that affect your enterprise. Calculating net vat is indeed very important to understand your actual costs so that you can sell your products and services at optimum prices.