Method for calculating Vat on invoices

The LoMag Warehouse Management software enables the users to calculate VAT (Value added Tax) by using invoice algorithms; net and gross. In this tutorial, we will teach you how to use each algorithm for calculating the VAT. Before starting with each algorithm, open the LoMag software and click on the settings button present at the top right corner of the window. A white dialog box appears as shown in the picture below, click on the calculation tab. By scrolling down the page, you will find an option of invoice algorithm. Now, select the net or gross option and hit the OK button. The assortment of this option permits a user to select invoice method of its own choice.

Though the choice of the invoice creation algorithm may cause small differences in the amounts on the invoice, however, both methods are correct and comply with applicable law.

Calculation of VAT with Net Invoice Method

The method of calculating value added tax (VAT) with net price algorithm is used by contractors in case of company-company relationship. Net price algorithm is often utilized by contractors to deduct the VAT amount as it is advantageous in this case.

For calculation, click the new invoice document option. As we have already selected the net or gross option in the previous step, therefore, a dialog box of select invoice algorithm opens, which enables you to select the algorithm of your choice. In our case, select the net invoice option and confirm the decision by clicking the OK button as shown in the figure below;

A net invoice document opens depicted below;

In both scenarios, we will use the same items and same price to understand the differences between the VAT amounts generated by these two algorithms. For this purpose, we add two goods having same VAT rate in the invoice document- which is 23%.

  1. Name: Cherries, Quantity: 100kg, Net Price: 5.67, Gross Price: 6.97, VAT rate:23%.
  2. Name: Strawberries, Quantity: 350kg, Net Price: 8.72, Gross Price: 10.73, VAT rate:23%.

For adding the products, click on the add option, a dialog box appears, type the cherries name. Software asks you whether you want to add this item or not? Click the Yes option.

Now, enter the required details. Click on the vat rates, a dialog box appears, move your mouse to add option. Type the details as shown in the figure below. Hit the OK button.

After completing the details of cherry product, a invoice document adds the product as shown in the figure below;

Now, repeat the similar steps for adding the strawberries product.

Now, the invoice document adds two products in the window. The LoMag software in the net method makes calculation as follows: Firstly, it calculates the net value of goods by multiplying the net unit price of net value and its tax rate. Secondly, value of VAT is calculated as the product of net value and its tax rate. Lastly, the final step is adding up the net value of the goods and value of VAT. Lets elaborate with the example;

  1. cherries 100 x 5.67 = 567, 00 PLN (net value) x 23% (VAT rate) = 130.41 PLN (value of VAT tax) + 567.00 PLN (net value) = 697.41 (gross value).
  2. strawberries 350 x 8.72 = 3052.00 PLN (net value) x 23% (VAT rate)= 701.96 PLN (value of VAT tax) + 3052.00 PLN (net value) = 3753.96 PLN (gross value).

From the above calculation the net value of the sold goods is 3691.00 PLN, VAT tax 832.37 and gross value is 4451.37 PLN. We can note all these values by clicking on the print preview option of the document as shown below;

Calculation of VAT with Gross Invoice Method

Gross invoice method is used by contractors for calculating the tax in case of company-customer relationship. Gross method is utilized by company when he only wants to calculate the final price of the goods and he does not want to deduct VAT. Generally, the cash registers used this module calculation to determine the value of the position.

Now, repeat the same steps, but this time select the gross invoice option during the start of the calculation. Add the same goods, same price and VAT rate just like the previous case. The invoice document in shown in figure below;

We can see the difference between these algorithm as shown below;

The above screenshot shows the difference between these two algorithm. This is only due to the difference between the calculation methods of these two procedures. The gross method calculates taxpayer art, which according to the legislator should be determined according to the following formula:

KP= (WB x SP)/(100+SP)

  1. KP is the amount of tax.
  2. WB is the value of delivered goods performed at the tax rate and including the amount of tax (gross value of sales).
  3. And SP is the tax rate.

WB for commodity cherries = PLN 5.67 (net value) + 23% (tax rate) = PLN 6.9741 (gross unit value - rounded up we will receive PLN 6.97) x 100 (quantity of commodity) = PLN 697.00 (gross value). WB for strawberry goods = 8.72 + 23% = PLN 10.7256 (it should be rounded up to PLN 10.73) x 350 = PLN 3755.50.

For adding the WB for all product, combine the both values i.e. WB for cherries PLN 697.00 + WB for strawberry goods PLN 350, 50.50 = PLN 4452.50.

Now, using the above formula the value of KP will be;

KP=(4452,50zl x 23%)/(100% + 23%) = 832,58zl

The net amount can be calculated by finding the difference between gross amounts such as PLN 4452.50 - PLN 832.58 = PLN 3619.92. You can check each value by generating the print preview of the gross invoice.

The table shows the differences between the amounts calculated by net and gross invoice methods;

Name Net Algorithm Gross Algorithm
Net Value 3,619,00zl 3,619,92zl
VAT amount 832,37zl 832,58zl
Gross Value 4,451,37zl 4,452,50zl