Whether you’re a business or an individual, you’re bound to deal with a series of taxes. It is how you pay back to the government so that it can further help you in different ways. One of the most common types of taxes levied is the VAT. Now, many people get confused with how the VAT works. So, if you find yourself in a perplexing situation where you don’t understand what VAT is and how to calculate it, then look no further. Here, we present to you everything about VAT and the ideal VAT calculator for ease.
What Is VAT?
VAT, the value-added tax, is one of the more complex elements that form the UK tax laws. While it is a common occurrence, many often confuse how to calculate that VAT. Making use of an online VAT calculator is the way to go nowadays.
But before we get into how we calculate the VAT, you should know what VAT is. Essentially, it is the tax added to any goods and services by the producer. While the customers pay for the tax at that moment, the business also goes on to ensure that the collected tax is paid to the government.
It is important to know that a threshold exists when it comes to any business having to register for the VAT. Typically, you will find the threshold to change over the years, so you need to stay in touch with the changing rules. However, till April 2022, it appears that the 2017 VAT threshold has been extended. This is about £85,000. So, if your taxable turnover for the next 30 days or the last 12 months exceeds this, then you have to register for VAT as soon as possible.
How To Calculate VAT?
One of the most common issues that prevail when it comes to the VAT is its calculation. It is safe to say that because of the creation of VAT calculator online, things have become much easier than before. No longer do you have to manually figure out how to go about calculating the VAT.
However, if you are interested to know how the VAT calculation works, then look no further. Here, we will discuss how a VAT calculator UK comes to its answer. It is easy to understand and won’t cause you any issues. The first thing that you need to know before we get into the details is that there are two variations when it comes to calculating the VAT. One is where you have to extract it from the gross figure and the other is where you simply calculate it through the net figure. So, before any further ado, let’s get into the details.
· Calculation On The Gross Amount
Gross refers to revenue that doesn’t have every expense or tax deducted from it. It is different than the net income as it showcases a whole amount. When we talk about the gross figure in terms of the VAT, it includes the VAT. To take out the VAT, you will need to extract it from the gross amount. You can make use of a UK VAT calculator to see how much you will need to pay as VAT from the gross amount.
For instance, let’s say that your gross amount is a total of £150,000. Now, if the VAT is the standard rate of 20%, then you will need to extract it from the £150,000. How do you do this? You can easily make use of a VAT reverse calculator to help you with this. However, it is not that difficult to do it manually either.
What you will need to do is divide £150,000 with 1 plus the VAT rate, i.e. 1.20. So, you will be having something like £150,000/1.20. This equation will result in £125,000, which is the net value. Now, why is this net value important? What you need to understand is that the gross amount is an accumulation of the net amount and the VAT. Now, you have the net amount, all you have to do is subtract the net amount from the gross amount to get the VAT amount. The calculation is much simpler on a UK vat calculator.
· Calculation On The Net Amount
Next, we have the simpler option, where you have to calculate the VAT on the net amount. This is simpler because it is a straight multiplication as opposed to any confusing divisions. What you need to understand here is that VAT is calculated on the net amount. So, whatever percentage that exists for the VAT, you will need to multiply it with the net amount.
Let’s look at an example for this as well. We can take a similar example where the rate is 20% and the net amount is £125,000. What you will need to do is multiply the net amount of £125,000 by 20%. So, you will end up with £125,000*0.20 which equals £25,000. The answer is the VAT that you get from this example.
Keep in mind that the VAT rate is not the same for every business. Some specific businesses need to account only for 5%, while others have a zero rate VAT applied to them. However, the basis of the calculation for each scenario remains the same.
Best Online Vat Calculator
If you wish to not go through the trouble of having to do the calculation yourself, then you will find many VAT calculators online as well. One of the most renowned platforms where you get to access VAT return calculator and VAT reverse calculator is through VAT Calculator. It is considered extremely simple to use and you get to adjust your VAT rate according to the changing rates over the years. It is simple to use and allows you to add or remove VAT from the respective net or gross amount.
Bottom Line
It is essential to know what VAT is and how to calculate it if you’re running a business. While you might not need to get into the calculations regularly by using the free VAT calculator, you still need to understand the mechanism of how it works. Moreover, you are required to keep a check on the changing thresholds to verify if your business qualifies to register for VAT or not as well.
