VAT Calculator is a tool that calculates the Value Added Tax (VAT) for transactions. It helps you calculate, Reverse VAT, VAT-inclusive, or exclusive, based on specified fields.
What is Reverse VAT?
Reverse VAT, also known as reverse charge mechanism. It is a tax process that shifts the responsibility for VAT payment from the supplier to the buyer. Through this mechanism, the buyer keeps track of both input and output VAT, thereby reducing fraudulent activities by suppliers.
Normally, businesses charge VAT on their supplies and claim the deduction on purchases. In the reverse charge mechanism, the supplier avoids charging VAT on the invoice, and the customer, in turn, pays and deducts the VAT through his VAT return.
The customer initially pays the net amount to the supplier, during VAT return, they calculate the reverse charge on the invoice as both input and output VAT. So, this has a neutral impact on the cash flows of both the customer and the supplier.
Example: If you are a Scotland businessman purchasing services with a total value of £1,000 from a Poland supplier, you will receive an invoice without VAT. Assuming that standard VAT rates apply, you would calculate the VAT amount at 20% and report £2,00 as output VAT and then £2,00 as input VAT.
How to Calculate Reverse VAT?
- The formula to remove Value-Added Tax (Reverse VAT) is the following:
- Net Amount: (Gross Amount / (1 + VAT Rate). Divide the amount by (1 + VAT Percentage)
- Example: Net Price = £100 / (1 + 0.20) = £83.33, or £100 / 1.2 = £83.33
UK Reverse VAT Calculator
This calculator helps you to calculate Reverse VAT. So, for calculation, select “Remove VAT” as it is selected by default and you don’t need to do anything. It helps you to calculate reverse VAT on purchases of goods or services.
VAT Calculation Formula
The VAT calculation formula is as follows:
Including VAT:
- Total Amount (Including VAT): Total Amount = Net Amount + VAT Amount
- Net Amount: The original amount before VAT
- VAT Amount: The VAT amount is (Original amount × VAT rate)
Excluding VAT (Reverse VAT):
- Net Amount (Exclusive of VAT): Net Amount = Total Amount / (1 + VAT Rate)
- Total Amount: The amount that includes VAT
- VAT Rate: The applicable VAT rate as a decimal (0.20 for a 20% VAT rate).
VAT Amount: To calculate the VAT amount. You can use this formula: Total Amount – Net Amount or VAT Amount = Net Amount × VAT Rate.
What is a Reverse VAT Charge?
Reverse charge means you must have an account for VAT on services purchased from businesses based outside the UK. This also applies to Germany, France and other countries. You must register for VAT, otherwise, the reverse charge will not apply to you.
If you’re a traveller and buy some goods or services in the UK, you may have paid VAT on the goods or services. Now, you can also reclaim the VAT you paid in that quarter. So, this means you don’t have to pay anything extra.
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FAQs
In reverse VAT, the buyer accounts for both input and output VAT on the transaction. The buyer pays VAT as output tax and they reclaim it as input tax on the same VAT return.
In the reverse charge mechanism, shifts the liability to account for VAT on supplies from the supplier to the buyer of a good or service. The main objective is to avoid the need for the supplier to register for VAT and account for VAT in the Member State in which it is not established.
Reverse VAT is applied when the supplier is not established in a country and the transaction is likely to be fraudulent. It is used in mobile phones, computer chips, telecommunications, construction services and more.