The never ending VAT problem

26 Nov 2008

So, the UK government has gone ahead and changed the VAT rate for the next 13 months, which is cool. As I have mentioned before, it is a bit of a schedule issue for us, having to do ‘on the hoof development and upgrades’, but that’s OK!

Just by chance the way that we calculate and manage taxes has been worked on recently, adding a whole new layer of options. However, these new features will not be implemented to cater for this latest change, as there is a whole QA process required, and we do not have the time.

Tax calculating in general does cause us some questions, which I wanted to muse

over here.

Here’s the problem. With the next phase of development on tax calculating, we are able to assign an individual tax rate for each product. This can be the default when adding this product to any entity in OpenCRM (invoice, quote, sales order, purchase order), or you could change this on the fly, on the product grid.

As soon as you introduce individual calculations, we hit an age old problem, concerning rounding up. Just take a look at Sage Line 50 and speak to any Sage user, that old ‘1p’ problem!

You see, by calculating the individual Tax percentages, and rounding to 2 decimal places, this gives a different tax total than adding up a sub total on the overall products and then calculating the tax percentage and rounding this.

So, which one is correct? I guess the answer is that they both are, and each is wrong, depending on what you are going to do with the figures. In our case, if we calculate the tax percentages seperatly, and then post to Sage, the totals will be different, so in pure accounting terms, of course this is unacceptable, but on analysis of the individual figures, they are correct.

Can you see the problem. Now, I am not sure how we resolve this, but we need to confirm our process as this feature is needed to cater for products that might be zero rated, being supplied on the same invoice as others with a tax rate. Also more flexible tax calculations are required by our American clients, selling into different states, with different tax rates.

More of this later I guess, comments welcome or if you prefer email me at grahama [at]