Hi there,
I’m not sure if I can explain what my problem is, but I’ll try.
I have created an invoice with certain items, and a discount applied overall. My sub-total is correct, taking the discount off, but the GST calculation has included the discounted amount as part of the subtotal, (does that make sense?).
So, I need to know how to make sure the GST is only applied to the sub-total (minus the discount). Can you help me please?
Thank you.
You need to furnish more information.
First, what do you mean by “a discount applied overall?” There are two ways to apply discounts in Manager. One is by discounting individual line items. See https://www.manager.io/guides/10530. The other is to enter a discount directly as a separate line item. See https://www.manager.io/guides/24843. There is no method for applying a discount “overall,” whatever you meant by that.
The most common way is to apply the discount to individual line items. This effectively lowers the unit price. And any tax code is applied to the lower resulting amount.
That is unclear. You should expect the total of GST to reflect discounted unit prices. But understand, tax is calculated line by line and summed, not calculated on a subtotal. So I am not sure what you are asking about here.
The is the regular behavior of Manager, unless you tried to enter a line item that is exclusively composed of a discount. In that case, assuming the discount was applicable to all items on the sales invoice, and that all items were taxable at the same rate, you should apply the tax code to the discount, too. This is described in the second link above. But let me stress, this is an unusual approach and will give you trouble if any goods from the invoice are later returned.
Thank you Tut. I thought I might’ve been unclear, but I couldn’t work out how to write my question, however, I think you have answered it. Thank you.
I had tried to enter the discount as a separate line item, exclusively composed of a discount, as it was a general discount, not applied to any one item. But I see that the GST is calculated on each line and so not on the subtotal. That explains why I had the result that I had.
I have now applied the discount using percent to each individual line, and that has solved my problem.
Could you help me though, why would I want to charge GST on a discount? I appreciate you taking the time to try to help an obvious newbie.
You are not “charging” GST on the discount, but “applying” GST to the discount, which results in reducing the overall amount charged. If you enter a discount as described in the second Guide, it results in a reduction of the sale. Therefore, you need to collect less GST from your customer. The same thing happens if you extend a discount on individual line items. Effective unit price is reduced, so less GST is calculated and charged to the customer.
That said, you need to check local tax law. In some—probably most—jurisdictions, the discount is a price reduction. So less tax is collected. But in others, tax is due on the undiscounted price. This is especially true in highly regulated markets, where a price might be set by statute or regulation and tax is due on that price. In that situation, the official price is taxable. Any discount is effectively a reduction in your profit, but not of the government’s take.
Thankyou. I’ve got it. I didn’t understand the ‘applying’ as opposed to ’ charging’, but I see it now. And I’ve adjusted my invoice accordingly.
I appreciate your detailed answers.