Let's be honest, nobody enjoys taxes—it's like a surprise party you didn't want. But with TimeChimp, at least you can navigate through the numbers with a smile, knowing that the system helps you calculate VAT without headaches. In this article, we'll explain how VAT on invoices is calculated and rounded.
Sometimes, the amount displayed in TimeChimp may differ from your own calculation. This is because TimeChimp has chosen to calculate and round VAT on an invoice per line.
This is in line with the tax authorities' rules because, according to them, you can choose whether to calculate VAT per invoice line or on the total amount. The rounding of the VAT amount is to two digits, as you learned in high school:
If the 3rd digit after the decimal point is less than 5, you round the amount down.
If the 3rd digit after the decimal point is 5 or higher, you round the amount up.
If there are only two digits after the decimal point, there is no rounding.
An Example
This may be a bit abstract, so let's look at an example where different VAT amounts occur. Three different services were provided with different hourly rates:
Service X: 4.25 hours worked at an hourly rate of €30.50
Total price excluding VAT: €30.50 * 4.25 = €129.625 (rounded to 2 decimal places: €129.63)
Service Y: 3.75 hours worked at an hourly rate of €22.75
Total price excluding VAT: €22.75 * 3.75 = €85.3125 (rounded to 2 decimal places: €85.31)
Service Z: 2.5 hours worked at an hourly rate of €35.25
Total price excluding VAT: €35.25 * 2.5 = €88.125 (rounded to 2 decimal places: €88.13)
Per Line
Let's first look at the VAT amount when calculated and rounded per line.
Service X: €129.63 * 0.21 = €27.22 (rounded to 2 decimal places)
Service Y: €85.31 * 0.21 = €17.88 (rounded to 2 decimal places)
Service Z: €88.13 * 0.21 = €18.51 (rounded to 2 decimal places)
The total VAT amount then amounts to €27.22 + €17.88 + €18.51 = €63.61
On the Total
Let's do the same calculation again but now calculate the VAT amount on the total amount excluding VAT.
The subtotal excluding VAT is €129.63 + €85.31 + €88.13 = €303.07.
The VAT amount in this case is €303.07 * 0.21 = €63.65 (rounded to 2 decimal places)
So, there is a difference of 4 cents when you choose a different way of calculating VAT, fortunately allowed by the tax authorities. This doesn't take away that you might get questions about it from your clients. Hopefully, this article has provided clarity and explanation.
If you still have questions, you can always send a message to our support team via the chat in TimeChimp or by emailing support@timechimp.com.