Why is my VAT rate calculating incorrectly on my Square Invoices?

[The_Flower_Den]

The title of this thread has been edited from the original: VAT figure wrong.

My VAT rate is set to 20% but the VAT figures when creating invoices does not add up to 20% can anyone help please?

[Katie_SQ]

Thanks for reaching out, @The_Flower_Den!

It sounds like you might have your VAT rate set up to be an inclusive tax. 

On your Square Dashboard, if you navigate to Settings > Account & Settings > Payments > VAT, open your VAT settings and change Inclusive Tax to Additive Tax and press Save, is your VAT rate calculating correctly on a new invoice? 

I'll be on the lookout for your reply. 😊

[The_Flower_Den]

Hi Katie,

Thank you for your reply. Can you please explain to me what’s the difference between inclusive and additive and whys there’s a calculation difference even when the 20% VAT is chosen? 
is there a way of knowing how long this inclusive VAT as been in place on my account? My concern is now, have I lost potential earnings on VAT due to this? Many thanks

[The_Flower_Den]

Following on from my last message. The inclusive option is the one square recommended for Europe. 

[Katie_SQ · Accepted solution]

Thanks for your reply, @The_Flower_Den! 

I'd be happy to clarify the difference between inclusive and additive VAT. 😊

When your VAT is set to be inclusive, it means the VAT is already factored into the price your customers see. The price displayed is the final price, including VAT. This is common in many European countries where the price shown to customers includes all taxes.

Here’s an example:

• Item Price: £100.00 (This is the price including VAT)
• Net Price (Price before VAT): £83.33
• VAT (Included in the Price): £16.67

To determine the net price (the amount before VAT is applied), think of it this way: the total price you see (£100.00) is made up of both the original item price and the VAT. In this case, the VAT rate is 20%, which means the VAT is 20% of the net price, not the total price.

Here's how it works:

• The total price of £100.00 includes the VAT, so to find out what the item costs before VAT, you need to consider that the £100.00 is 120% of the original price (100% being the net price and 20% being the VAT).
• This means the net price is the part of the total that accounts for only 100% of the value, before the 20% VAT is added.

The VAT itself is the difference between the total price and this net price. So, while the VAT amount appears to be 16.67% of the total price (£100.00), it is actually 20% of the net price (£83.33). This method ensures that the price your customers see is the final amount they pay, including all taxes.

If you were to use additive VAT, the VAT would be added on top of the item price:

• Subtotal: £100.00
• VAT (20%): £20.00
• Total: £120.00

I'm not able to see how long the inclusive VAT setting has been active on your account. However, you can check your previous transactions to see if this pattern has been consistent.

While Square has created this tax calculation system, we can’t offer any tax advice or consultation services, so if you have any questions about your tax obligations, we recommend consulting a professional tax advisor.

I hope this helps! If you have any other questions, please let me know. 😊