How VAT Return Is Calculated

How VAT Return is Calculated 

You may find it interesting that how VAT Returns calculated differs from other accounting software. Accounting firms use several techniques to determine the tax liability of an enterprise. The technique they use depends on whether the corporation is a private individual or a public body. If the enterprise is a public body then all its income and expenses are subjected to tax irrespective of whether the tax is charged in British pounds Sterling. In the case of private individuals, only UK tax is paid on their income.

How Accounting Firms Calculate the Tax Liability

Now, let us see how accounting firms calculate the tax liability on a corporate level. Accounting software provides the means to input the necessary data and to check them against the final accounts. At the end of the financial year, the final accounts are prepared and submitted for submission to the tax authorities of the country. The statutory assessment formula given by the tax office determines how much tax should be paid on the corporate income. This formula also involves several variables like the amount of revenue earned by the enterprise, its shares, and stock options and dividends paid to shareholders, etc.

Limited Company Scheme

Hence, a majority of the businessmen prefer to outsource the preparation of the final accounts to accountants so that they can have a fair idea about the tax payable on their incomes. There are various accounting software available in the market and the one that you select will depend on your requirement. There are various schemes like single transferable asset scheme (STAS), double transferable asset scheme (DTA), limited company scheme (LICS), and general transferable asset scheme (GTAS). Generally, all the schemes mentioned above are under a single transferable scheme.

Accounting Software 

There is another form of tax calculation known as the retail price index (RPI). Under this scheme, the price movements in the underlying assets are represented by the retail price index. The bookkeeper who is assigned the task of preparing the STAS or DTA will be able to explain the difference between the RPI and the retail price index. A bookkeeper in any accounting software will be better versed with respect to the retail price index than ordinary accountants.

Types of Tax Payable

There are three other types of tax payable on dividends, capital gains, and self-employment earnings. Under the retail price index, the tax payable is equal to 10% of the retail price per item sold. Under the capital gain tax, if the gain was not able to be credited to capital assets, the tax payable is equal to zero percent. Self-employment income is usually taxed under the employment tax scheme and the general tax scheme.

VAT Schemes Work

How is How VAT Return calculated? The first step in the process of how VAT schemes work is the recording bank. Under most of the schemes, the recording bank will require certain information about the proprietor of the company, the type of trade, and the nature of the business. This information is needed for two purposes. Firstly, it helps the company keep track of the tax payments made, and secondly, it helps the accounting officers calculate the tax liability.

Process of How Vat Return Calculate

Information required in the process of how vat return is calculated by the accounting schemes is financial records such as profit and loss account, journal entries, bank reconciliation, balance sheet, income statement, and so on. The company must ensure that all the records maintained by it are updated. The second step in the process is to enter the figures in the income statement. There are different methods used in entering the figures. Some accounting systems allow the company to make an electronic entry while some use the manual method.

Accounting Systems

The most important step in the process of how vat return is calculated is the inclusion of the relevant nominal codes. These are special codes that identify the item and ensure that the same is deducted at the appropriate tax rate. Most accounting systems allow different vat schemes to have different nominal codes. When the same code is deducted more than one time, it results in a negative figure and hence has to be removed from the statement. The company must keep proper records of all the deductions made.