VAT-inclusive prices and sales tax: separate tax from revenue

Distinguish the buyer total from business revenue

The amount a buyer pays can include tax collected for an authority. That collected amount should not automatically be treated as money available to cover product costs. Enter the price's tax treatment and any separately collected marketplace sales tax using the relevant fields.

For an illustrative £120 VAT-inclusive amount at 20%, the amount excluding VAT is £100 and the tax component is £20. Dividing by 1.20 produces the net amount; simply subtracting 20% of £120 would give a different and incorrect result for that assumption.

Use inclusive and exclusive inputs consistently

With an exclusive £100 price and an entered 20% rate, the buyer total becomes £120 while revenue remains £100. With an inclusive £120 price, the buyer total stays £120 and the tax component is removed to establish the same £100 revenue.

These examples explain the arithmetic. They do not decide whether you must register, which rate applies, whether a supply is exempt or where tax is due. Those questions depend on the actual business and transaction and need appropriate professional advice.

Check cost and fee bases separately

Use product costs on a consistent tax basis. If input tax is recoverable in your circumstances, a net cost may be appropriate for the profitability estimate; otherwise the non-recoverable amount belongs in the cost. Do not switch between net and gross costs within a comparison without explanation.

Seller fee bases are a separate matter. A marketplace may include collected tax in one type of fee and exclude it from another. The Etsy US preset distinguishes those bases; other unusual rules may require an exact manual fee. Revenue treatment alone does not establish the correct fee base.

Before you use the result

• Identify whether the entered price includes tax.
• Separate independently collected marketplace tax.
• Use the rate applicable to the entered scenario.
• Keep costs on a consistent recovery basis.
• Verify marketplace fee bases separately.

Common questions