How to Calculate VAT
Value added tax or VAT is UK sales tax. Its general rate is 20%. Output VAT is charged by a business to its clients; input VAT is paid to its suppliers.
Calculating VAT Payments to HMRC:
The difference between output and input VAT is calculated over a period of three months and remitted to HMRC one month later. If input VAT is greater than output, the difference is paid back to the business instead.
VAT – UK Sales & Purchases: If you are engaged in the sale of goods or services and your yearly sales turnover either is over £60.000, you are required by law to register for VAT (value added tax). You may also voluntarily register if you believe that you annual sales turnover is likely to be greater than the £60.000 threshold.
The rate of VAT is now generally 20%. VAT is not chargeable though to some categories such as foodstuff, books and children’s clothing. Even if all sales are zero rated the business still has to register if annual sales exceed £60.000. VAT is added to billings to clients and paid for billings from suppliers.
At the end of every three months VAT is accounted for on the VAT return, which can be done over the Internet.
Penalties for Being Late:
Late filing of the VAT return will attract penalties as will late payment. Continued late payment will also result in the addition of interest charges. VAT charged to clients must be accounted for regardless of whether or not they have paid the business.
Exports are generally exempt from VAT but there are exceptions: The rules governing imports can be complex however.
Exports and VAT: The export of goods and services is largely VAT exempt. There are however certain procedures which have to be observed in order for such business to qualify. Because the rules can sometimes be complicated it is always advisable to check with your accountant; freight forwarder or Customs direct beforehand but the following gives a general guide.
Exports to a non EC country – VAT exempt
Invoicing goods and services for export without charging VAT is subject to a time limit. The requirement is that these must be shipped within three months of the original order for them. The business is expected to maintain records of all individual export transactions for inspection by Customs including the following:
A copy of the customer’s order
A proof of shipment (bill of lading - trucking receipt - airway bill)
A copy of your invoice
Exports to an EC country – VAT exempt:
There is no time limit on orders for delivery to export customers who are located within the EC. If you wish to invoice the goods without charging VAT the client’s local VAT registration number must appear on the invoice. The following records must also be kept for possible inspection by HMRC to validate their VAT free status:
A copy of the customer’s order
A proof of delivery (bill of lading - trucking receipt - airway bill)
A copy of your invoice (showing the customer’s local VAT registration number)
Export delivery charges – VAT exempt:
Regardless of whether exports are within or beyond the EU you can charge your customers for delivery free of VAT providing the delivery charge you intend to make is clearly stated on your customer’s original order to you. This is classified by HMRC as a single supply transaction.
If the original order does not show a delivery charge and you subsequently agree to pay for the delivery, this would be classified by HMRC as a separate supply transaction to which VAT is to be added.
VAT on imports:
The rules governing VAT on imports are quite simple: If the goods are coming directly to you from the EU there is no VAT payable on importation; if they are coming to you from outside the EU VAT is chargeable.
VAT is charged on the landed cost of the goods. The landed cost is defined as the cost of goods plus freight charges import duty and other clearance charges.
The official position is that VAT must be paid to Customs before the goods can be released, but a one month deferment can apply. This is allowed against a bank guarantee to HMRC. Deferment can also be offered by your shipping agent. Figurewizard assumes that deferment is in force and that payment of VAT on non-EC imports takes place a month after arrival in the UK.
In the case of VAT exempt goods (books, children’s’ clothing etc.) the tax is not required to be paid on importation.
VAT on imports from the EC:
There is no VAT payable on importation from the EU. This is still the case if the goods originate from outside the EU as the EU supplier will have paid their local sales tax on importation before shipping them to your business.
Summary:
The administration of VAT on imports is undertaken by the shipping agent. Records for all imports, including documents relating to VAT and other charges have to be maintained. It is recommended that each shipment carries all such documents in a single file or folder.
Please use this area to contribute your opinion to this article whether its to add detail, critiscise or correct we really appreciate your input
Calculating VAT Payments to HMRC:
The difference between output and input VAT is calculated over a period of three months and remitted to HMRC one month later. If input VAT is greater than output, the difference is paid back to the business instead.
VAT – UK Sales & Purchases: If you are engaged in the sale of goods or services and your yearly sales turnover either is over £60.000, you are required by law to register for VAT (value added tax). You may also voluntarily register if you believe that you annual sales turnover is likely to be greater than the £60.000 threshold.
The rate of VAT is now generally 20%. VAT is not chargeable though to some categories such as foodstuff, books and children’s clothing. Even if all sales are zero rated the business still has to register if annual sales exceed £60.000. VAT is added to billings to clients and paid for billings from suppliers.
At the end of every three months VAT is accounted for on the VAT return, which can be done over the Internet.
Penalties for Being Late:
Late filing of the VAT return will attract penalties as will late payment. Continued late payment will also result in the addition of interest charges. VAT charged to clients must be accounted for regardless of whether or not they have paid the business.
Exports are generally exempt from VAT but there are exceptions: The rules governing imports can be complex however.
Exports and VAT: The export of goods and services is largely VAT exempt. There are however certain procedures which have to be observed in order for such business to qualify. Because the rules can sometimes be complicated it is always advisable to check with your accountant; freight forwarder or Customs direct beforehand but the following gives a general guide.
Exports to a non EC country – VAT exempt
Invoicing goods and services for export without charging VAT is subject to a time limit. The requirement is that these must be shipped within three months of the original order for them. The business is expected to maintain records of all individual export transactions for inspection by Customs including the following:
A copy of the customer’s order
A proof of shipment (bill of lading - trucking receipt - airway bill)
A copy of your invoice
Exports to an EC country – VAT exempt:
There is no time limit on orders for delivery to export customers who are located within the EC. If you wish to invoice the goods without charging VAT the client’s local VAT registration number must appear on the invoice. The following records must also be kept for possible inspection by HMRC to validate their VAT free status:
A copy of the customer’s order
A proof of delivery (bill of lading - trucking receipt - airway bill)
A copy of your invoice (showing the customer’s local VAT registration number)
Export delivery charges – VAT exempt:
Regardless of whether exports are within or beyond the EU you can charge your customers for delivery free of VAT providing the delivery charge you intend to make is clearly stated on your customer’s original order to you. This is classified by HMRC as a single supply transaction.
If the original order does not show a delivery charge and you subsequently agree to pay for the delivery, this would be classified by HMRC as a separate supply transaction to which VAT is to be added.
VAT on imports:
The rules governing VAT on imports are quite simple: If the goods are coming directly to you from the EU there is no VAT payable on importation; if they are coming to you from outside the EU VAT is chargeable.
VAT is charged on the landed cost of the goods. The landed cost is defined as the cost of goods plus freight charges import duty and other clearance charges.
The official position is that VAT must be paid to Customs before the goods can be released, but a one month deferment can apply. This is allowed against a bank guarantee to HMRC. Deferment can also be offered by your shipping agent. Figurewizard assumes that deferment is in force and that payment of VAT on non-EC imports takes place a month after arrival in the UK.
In the case of VAT exempt goods (books, children’s’ clothing etc.) the tax is not required to be paid on importation.
VAT on imports from the EC:
There is no VAT payable on importation from the EU. This is still the case if the goods originate from outside the EU as the EU supplier will have paid their local sales tax on importation before shipping them to your business.
Summary:
The administration of VAT on imports is undertaken by the shipping agent. Records for all imports, including documents relating to VAT and other charges have to be maintained. It is recommended that each shipment carries all such documents in a single file or folder.
Your Comments
respected sir,
actually i want to know how i calculate vat on gross receipt.for example:
purchas=1000.00
input vat=125.00(12.5%)
sale=1500
output vat= 187.5
vat paid=150
vat payble=37.5
so,in this example if i prepare profit & loss,Balance Sheet what figure put in sale & what figure put in purchase and what figure put in expenditure site in p&l account and what figure put in Balance sheet.please sir its verry urgent. i want wash my funda
Comment by jyoti ranjan baliyarsingh
actually i want to know how i calculate vat on gross receipt.for example:
purchas=1000.00
input vat=125.00(12.5%)
sale=1500
output vat= 187.5
vat paid=150
vat payble=37.5
so,in this example if i prepare profit & loss,Balance Sheet what figure put in sale & what figure put in purchase and what figure put in expenditure site in p&l account and what figure put in Balance sheet.please sir its verry urgent. i want wash my funda
Comment by jyoti ranjan baliyarsingh
On the figures you provide the output VAT is 187.5 and the input VAT is 125. This leaves a balance to be remitted to the tax office of 62.5. Assume that these are the sole transactions. On receipt of the goods the input VAT is credited to the VAT account. If the goods were not sold by the time the next payment quarter falls due then the situation would be that the VAT office would owe you this sum. On the sale of the goods for 1500 the VAT of 187.5 is debited to the VAT account and the difference between the two figures (62.5) would become the amount due. This figure is a 'current liability' in your balance sheet until such time as it is paid. Remember however that if, after the end of the VAT quarter the goods for which the 125 input tax has been paid are unsold, the input VAT of 125 is a 'current asset' in your balance sheet as the VAT office owes you this sum until they are sold.
Comment by Figurewizard
Comment by Figurewizard
VAT is now at 15%. Is this reflective in your reports?
Comment by Danny Wilson
Comment by Danny Wilson
VAT is calculated at 17.5% by the system except during the period 1st. December 2008 to 31st. December 2009, when it is calculated at 15%.
Comment by Figurewizard
Comment by Figurewizard
Your first comment to jyoti is the best I have seen in explaining this, despite a couple of hours trawling the internet! Well done!
Comment by maria
Comment by maria
How to get the vat payable of this given problem: Mr Z has the ff. transaction for the month of january 2010:
Rental Income--------------------------150,000
Sales from copra trading---------------450,000
Sales from Grocery Products------------600,000
Sales from Rice & Corn-----------------250,000
Purchases Copra------------------------300,000
Purchases Grocery Products-------------520,000
Purchases Rice & Corn------------------130,000
Purchases Grocery Products from
non-vat registered taxpayer--------140,000
Problem #2
XYZ corporation, a vat registered corporation has the ff. transaction for the first quarter of 2010. All transaction are reported exclusive of vat Gross Receipts Hotel Business P 2,800,000
Gross Sales- Department Store
a) clothing department---------------------------7,200,000
b) restaurant/ fast food-------------------------4,000
c) Supermarket
-fruits, meats, & vegetables-------------------1,100,000
-canned goods & other manufacturing items------5,600,000
purchase and other expenses
laundry expense (vat supplier)-----------------580,000
janitorial & securities agencies---------------400,000
purchases from vat registered person--------------8,900,000
purchases fruits, meats & vegetables--------------600,000
electricity expense-------------------------------300,000
telephone & other vatable utilities---------------150,000
REQUIREMENTS:
Compute the ff.:
a) output tax
b) total input tax
c) Input tax to be allocated/ apportion to vat transactions
d) Vat Payable
Hope for your response..thanks!
Comment by jenef
Rental Income--------------------------150,000
Sales from copra trading---------------450,000
Sales from Grocery Products------------600,000
Sales from Rice & Corn-----------------250,000
Purchases Copra------------------------300,000
Purchases Grocery Products-------------520,000
Purchases Rice & Corn------------------130,000
Purchases Grocery Products from
non-vat registered taxpayer--------140,000
Problem #2
XYZ corporation, a vat registered corporation has the ff. transaction for the first quarter of 2010. All transaction are reported exclusive of vat Gross Receipts Hotel Business P 2,800,000
Gross Sales- Department Store
a) clothing department---------------------------7,200,000
b) restaurant/ fast food-------------------------4,000
c) Supermarket
-fruits, meats, & vegetables-------------------1,100,000
-canned goods & other manufacturing items------5,600,000
purchase and other expenses
laundry expense (vat supplier)-----------------580,000
janitorial & securities agencies---------------400,000
purchases from vat registered person--------------8,900,000
purchases fruits, meats & vegetables--------------600,000
electricity expense-------------------------------300,000
telephone & other vatable utilities---------------150,000
REQUIREMENTS:
Compute the ff.:
a) output tax
b) total input tax
c) Input tax to be allocated/ apportion to vat transactions
d) Vat Payable
Hope for your response..thanks!
Comment by jenef
please if am to import goods from china that worth £27,000. i am to pay VAT and please can you tell me the way i will be charges as well as every charges i need to pay including VAT
Comment by Deborah Olasupo
Comment by Deborah Olasupo
give me simple formula for calculate vat return like turnover and output and input tax method
Comment by passion varma
Comment by passion varma
how i fill vat return form with example & how i calculate CST.
Comment by BIPLAB
Comment by BIPLAB
is it vat calculated like inputvat -out put vat
Comment by asmita
Comment by asmita
For exemple:
purchase-Rs1000/-
Input Vat-Rs125/-
Sale-Rs1500/-
Output Vat-Rs187.5/-
Vat Payment-Rs50/-
Now-
(1)what amount i will be taken as sales is P&L A/c-Rs1500/- or Rs1687.5/-.
(2)what amount i will be taken as purchase is P&L A/c-Rs1000/- or Rs1125/-.
(3)what amount i will be taken as Vat Expenses P&L A/c- in Expenses Side.
(4)what amount i will be taken in Current Liability.
Comment by JYOTI RANJAN BALIYARSINGH
purchase-Rs1000/-
Input Vat-Rs125/-
Sale-Rs1500/-
Output Vat-Rs187.5/-
Vat Payment-Rs50/-
Now-
(1)what amount i will be taken as sales is P&L A/c-Rs1500/- or Rs1687.5/-.
(2)what amount i will be taken as purchase is P&L A/c-Rs1000/- or Rs1125/-.
(3)what amount i will be taken as Vat Expenses P&L A/c- in Expenses Side.
(4)what amount i will be taken in Current Liability.
Comment by JYOTI RANJAN BALIYARSINGH
For exemple:
Service Income-Rs10,000/-
Service tax Output-Rs1,030/-
suppose Service tax Input-Nil
Collection from that income-Rs5,000/-
Now-
(1)How much amount i will be paid for service tax.
(2)Is Rs1030(10000*10.3%) Or Rs515(5000*10.3%)
(3)According to rule Service Tax is payment in what basis.it is for Bill basis or Collection basis.
(4)if bill basis what amount will taken in p&l A/c and what amount will taken in Balance Steet.
(5)if bill basis suppose collection amount is nil.can i pay service tax.
(6)if collection basis paid ST, then what will be the accounting entries in p&l A/c And Balance Sheet.
Comment by JYOTI RANJAN BALIYARSINGH
Service Income-Rs10,000/-
Service tax Output-Rs1,030/-
suppose Service tax Input-Nil
Collection from that income-Rs5,000/-
Now-
(1)How much amount i will be paid for service tax.
(2)Is Rs1030(10000*10.3%) Or Rs515(5000*10.3%)
(3)According to rule Service Tax is payment in what basis.it is for Bill basis or Collection basis.
(4)if bill basis what amount will taken in p&l A/c and what amount will taken in Balance Steet.
(5)if bill basis suppose collection amount is nil.can i pay service tax.
(6)if collection basis paid ST, then what will be the accounting entries in p&l A/c And Balance Sheet.
Comment by JYOTI RANJAN BALIYARSINGH
respected sir,
you did not ans. my question.actually i want to know how i calculate vat on gross receipt.for example:
purchas=1000.00
input vat=125.00(12.5%)
sale=1500
output vat= 187.5
vat paid=150
vat payble=37.5
so,in this example if i prepare profit & loss,Balance Sheet what figure put in sale & what figure put in purchase and what figure put in expenditure site in p&l account and what figure put in Balance sheet
Comment by
you did not ans. my question.actually i want to know how i calculate vat on gross receipt.for example:
purchas=1000.00
input vat=125.00(12.5%)
sale=1500
output vat= 187.5
vat paid=150
vat payble=37.5
so,in this example if i prepare profit & loss,Balance Sheet what figure put in sale & what figure put in purchase and what figure put in expenditure site in p&l account and what figure put in Balance sheet
Comment by
So if i buy electronics products from germany to poland !
The selling price in germany in NET price , do i have to pay VAT in polland ,which is 22% ??? or because i'll import from EC country , so i'm not goanna pay it ??
Comment by Hachem
The selling price in germany in NET price , do i have to pay VAT in polland ,which is 22% ??? or because i'll import from EC country , so i'm not goanna pay it ??
Comment by Hachem
Thanks for this information, well explained and very helpful.
Comment by Mark
Comment by Mark
VAT CALCULATION
Comment by KISHOR NIMJE
Comment by KISHOR NIMJE
Thank you very much for writing this. I've been pulling my hair out all day.
So basically VAT formula would be like below?
VAT Payable = VAT paid to you (by your customers) - VAT already paid (when purchasing the goods)
Am I right?
Comment by iD
So basically VAT formula would be like below?
VAT Payable = VAT paid to you (by your customers) - VAT already paid (when purchasing the goods)
Am I right?
Comment by iD
VAT you charge to your customers is the output tax. The vat that your suppliers charge to you is the input tax and the difference between the two is what your business has to pay to HMRC.
Note carefully the word 'charge.' You calculate the vat charged, not paid. That means that you cannot withhold vat you have charged your customers who have not yet paid. This is why HMRC uses the expression 'tax point.' The day you issue an invoice including vat is the point at which you become liable for the tax.
Comment by Duncan Fletcher
Note carefully the word 'charge.' You calculate the vat charged, not paid. That means that you cannot withhold vat you have charged your customers who have not yet paid. This is why HMRC uses the expression 'tax point.' The day you issue an invoice including vat is the point at which you become liable for the tax.
Comment by Duncan Fletcher
Please use this area to contribute your opinion to this article whether its to add detail, critiscise or correct we really appreciate your input
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