When working with amounts inclusive of VAT, the VAT is calculated individually for each line item before being summed up. If you choose to invoice inclusive of VAT, be aware that minor rounding differences may occur. This can sometimes raise questions. You might end up with a different total than if you calculated the VAT on the total amount, leading to rounding variances of a few cents.
Here's an example to illustrate why this happens:
Amounts including VAT
If you sell an item for 100 EUR including 21% VAT, the amount excluding VAT is calculated as follows:
The subtotal excluding VAT is 100 / 1.21 = 82.6446 EUR.
This amount is rounded according to mathematical rules to 82.64 EUR.
Therefore, the VAT amount is 100 EUR (price including VAT) - 82.64 EUR (subtotal excluding VAT) = 17.36 EUR.
Amounts excluding VAT
If you work with the amount excluding VAT of 82.64 EUR and want to calculate the VAT (multiplying by 0.21), the VAT amount is 17.3544 EUR, rounded to 17.35 EUR.
Therefore, the total amount in this example is:
- 82.64 EUR excluding VAT
+ 17.35 EUR VAT (21% VAT, rounded)
Total = 99.99 EUR excluding 21% VAT
As you can see, in these situations, there will be a small rounding difference which is legally acceptable.
It's up to you to choose whether to create invoices inclusive or exclusive of VAT.
For more information about VAT, you can read this help article: VAT Settings