VAT
Rounding
Understand how Wafeq calculates tax amounts and the effect of rounding.
How Wafeq calculates subtotal, total tax amount and total invoice amount
Here's how Wafeq calculates these amounts:
- Total = Total of Line amount including tax for all lines
- Line amount including tax = Quantity * Price before tax * (1 - % discount) * (1 + % tax), rounded to 2 decimals.
- Total tax = Sum of Line tax amount for all lines
- Line tax amount = Quantity * Price before tax * (1 - % discount) * tax, rounded to to decimals
- Subtotal = Total - Total tax
A simple numerical example
Take the following invoice with only one line item. We assume the Price
is exclusive of tax. Note how the tax amount gets rounded from 6.795
to 6.80
.
Line | Quantity | Price | Tax Rate | Tax | Line amount |
---|---|---|---|---|---|
Line item 1 | 1 | 45.30 | 15% | 6.795 -> 6.80 | 45.30 + 6.80 = 52.10 |
Subtotal | 45.30 | ||||
VAT total | 6.80 | ||||
Total | 52.10 |
Let's calculate the VAT total as a percent of the Subtotal:
VAT Total / Subtotal = 6.80 / 45.30 = 15.01103%
As you can see, VAT is no longer exactly 15% of the subtotal because of the rounding.
Is this a problem?
No. Rounding effects are present in all financial applications. Different applications may handle rounding differently.