For example, let's say that you charge £12.12 for an asbestos sample and you want to raise an invoice for five samples to your client. The vat rate is 20%. Here is the invoice:
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| Five samples @ £12.12+vat, plus five lots of £2.42 vat |
Each line is invoiced at £12.12+vat. 20% of £12.12 is £2.424 which rounds down to £2.42 vat on each line.
The total net is 5 x £12.12 or £60.60. The vat total is 5 x £2.42 or £12.10. That gives an invoice total of £72.70 and that is what Alpha Tracker will display on screen, on the invoice PDF, and will transfer to finance packages Xero, QuickBooks or Sage (see this web page for all of our integration options https://alpha-tracker.co.uk/integrations).
However... 20% of £60.60 is actually £12.12, so shouldn't the total be £72.72? In other words, calculating the vat on each line and totalling it, is giving a different result to calculating the vat on the total net.
HMRC (the UK tax authority) is well aware of this dilemma and allow either the "add up the vat on each line" or the "calculate VAT on the total net" method to be used on an invoice. They have posted a web page about it here: https://www.gov.uk/guidance/vat-guide-notice-700#section17.
For more information, do contact our Support Desk or read the following helpful information from Xero, the global leader of online accounting software for small businesses: https://central.xero.com/s/article/How-VAT-works-in-Xero-UK#Whatyouneedtoknow
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