How VAT is calculated on ShopWired

Definitions

• NET is the cost of a product or delivery rate without VAT
• VAT is the amount of VAT charged for a product or delivery rate
• GROSS is the total price paid by the customer

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NOTE: The guidance below provides example calculations for VAT for an example product where the seller is in the United Kingdom and the rate of VAT charged is 20%. The process for calculating VAT for any other rate is the same.

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Price storage

• ShopWired stores all prices exclusive of VAT, irrespective of whether you have opted to enter prices excluding or including VAT

• Prices are stored to 4 decimal places (e.g. £0.0001)

• When entering prices into ShopWired including VAT, ShopWired calculates the NET price by dividing the entered price by 1 + the VAT rate (e.g. 1 + 20% = 1.20 for the UK)

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VAT calculation methods

ShopWired provides two separate methods for how VAT is calculated on visitor shopping baskets and resulting orders, both of which function in accordance with the HMRC's VAT guide VAT Notice 700 section 17!.

1. VAT can be calculated on the total quantity of a line item in a basket/order:
   • This method of VAT calculation is described by HMRC at section 17.5.1 of VAT Notice 700
   • Once the VAT is calculated on a line item, the amount of VAT is added up for each line item (including delivery charges) to arrive at the VAT total
     
     
2. VAT can be calculated on a single unit of a line item in a basket/order:
   • This method of VAT calculation is the current default on ShopWired (for new and existing accounts)
   • This method is described by HMRC at section 17.5.2 of VAT Notice 700
   • Once the VAT is calculated on a single unit, the amount of VAT is added up for the total quantity of items in a line item and then the sub total of VAT for each line item is added up (including delivery charges) to arrive at the VAT total

To select how VAT is calculated for your ShopWired account:

1. Navigate to Settings > VAT settings

2. Locate the VAT calculations setting

3. Select either calculate VAT per line item (for method 17.5.1) or calculate VAT per unit (for method 17.5.2)

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Calculating VAT on a line item (17.5.1)

When you have selected to calculate VAT on a line item, ShopWired performs the following calculations in the following order:

1. ShopWired first calculates the GROSS price of a single unit of a line item by multiplying the stored NET price by 1 + the VAT rate, e.g. £100 x 1.2 = £120.00
   • This amount is rounded to the nearest 1p (2 decimal places)
     
     
2. The GROSS price of a single unit is then multiplied by the quantity of the line item to calculate the GROSS price of the line item, e.g. £120.00 x 3 = £360.00
   
   
3. The VAT amount of the line item is calculcated using the line item GROSS by dividing the GROSS by 1 + the VAT rate and then multiplying the resulting figure by the VAT rate, e.g. £360 ÷ 1.2 x 0.2 = £60.00
   • This amount is rounded to the nearest 1p (2 decimal places)
     
     
4. The NET price of the line item is calculated by subtracting the VAT from the GROSS, e.g. £360.00 - £60.00 = £300.00
   
   
5. Approximate amounts for the single unit are calculated by diving the line item values by the quantity, e.g.:
   • The single unit GROSS is £360.00 ÷ 3 = £120.00
   • The single unit NET is £300.00 ÷ 3 = £100.00
   • The single unit VAT is £60.00 ÷ 3 = £20.00
   • Each approximate single unit value is rounded to 4 decimal places (£0.0001)
     
     
6. The total amount of VAT on a basket/order is calculated by adding up the VAT amount for each line item

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Calculating VAT on a single unit (17.5.2)

When you have selected to calculate VAT on a single unit, ShopWired performs the following calculations in the following order:

1. ShopWired first calculates the GROSS price of a single unit of a line item by multiplying the stored NET price by 1 + the VAT rate, e.g. £100 x 1.2 = £120.00
   • This amount is rounded to the nearest 1p (2 decimal places)
     
     
2. The VAT amount of a single unit is calculated by multiplying the stored NET price by the VAT rate, e.g. £100 x 0.2 = £20.00
   • This amount is rounded to the nearest 1p (2 decimal places)
     
     
3. The NET price of a single unit is recalculated by subtracting the VAT amount from the GROSS, e.g. £120.00 - £20.00 = £100.00
   • As a result of rounding, the (new) calculated NET price may be different to the originally stored NET price
     
     
4. Amounts for the line item total are calculated by multiplying the single unit values by the quantity, e.g.:
   • The line item GROSS is £120.00 x 3 = £360.00
   • The line item NET is £100.00 x 3 = £300.00
   • The line item VAT is £20.00 x 3 = £60.00

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The effects of rounding

HMRC's VAT Notice 700 requires that VAT is rounded at a specific stage of the calculation of VAT, determined by the calculation method used (either 17.5.1 or 17.5.2):

• For 17.5.1, VAT on a line item is rounded to the nearest £0.01
• For 17.5.2, VAT on a single unit is rounded to the nearest £0.01

When a basket/order contains "larger" single unit pricing and/or "lower" quantities, the effects of rounding are negligble or non-existent, but as single unit prices get lower and quantities get higher, the effects of rounding become more noticeable.

For a product costing £7.95 (including VAT) with a quantity ordered of 10:

Calculation method	Single unit GROSS	Single unit NET	Single unit VAT	Line item GROSS	Line item NET	Line item VAT
Line item	£7.95	£6.63	£1.33	£79.50	£66.25	£13.25
Single unit	£7.95	£6.62	£1.33	£79.50	£66.20	£13.30

For a product costing £3.95 (including VAT) with a quantity ordered of 100:

Calculation method	Single unit GROSS	Single unit NET	Single unit VAT	Line item GROSS	Line item NET	Line item VAT
Line item	£3.95	£3.29	£0.66	£395.00	£329.00	£66.00
Single unit	£3.95	£3.29	£0.66	£395.00	£329.17	£65.83

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Line item approximate values

When VAT is calculated on a line item, ShopWired calculates approxiate values for the NET price and the amount of VAT of a single unit of each line item.

These amounts are stored by ShopWired to 4 decimal places but in certain places within your ShopWired account (such as the page where you view detailed order information) or where order information is downloaded (such as the orders CSV) the amounts are shown to 2 decimal places.

As a result, the NET price or the amount of VAT for a single unit when multiplied by the quantity will not always equal the line item values. This is expected behaviour.