I run an insurance agency and provide some clients with discounts. I give the discounts out of my commission, which is 10% of the unit price. However, I pay tax (GST 6%) on the unit price, not the discounted amount. The problem I am facing is my line tax is calculated on the discounted amount, not the unit price. How do I calculate my tax on the unit price and not the discounted amount. Please not that the discount should also apply on the unit price. So basically, I need the total amount to be (unit price - % of discount) + (unit price + 6% tax). Appreciate your help guys.
From your example it appears you are giving a cash discount not a supply discount…
Create an P&L Expense account call Clients Discounts.
Process the Sales Invoice for the insurance as normal so the GST is unaffected, then add a line, select account Clients Discount and enter the amount with a minus sign in front (-30.00).
Thank for your help Brucanna. But there is now way to show it as percentage on the same line? I have a many items usually on the invoice so I’m afraid by adding a line after every item, the invoice may be too long. Thanks.
There are a couple of problems with including the cash discount all on the one line.
Lets assume the policy is worth 1000, GST @ 6% is 60, commission @ 10% is 100 with discount of 50
So the single line item on the invoice has the policy value @ 950 and the GST calculated out as 57.
If you tried to keep the GST @ 60 then the invoice’s GST Rate would actually be 6.315% (60/950). You would probably find under your country’s tax laws it would be an offence to charge non standard GST.
Also, lets assume your client is a business who is also using Manager for their accounting.
How do they process this invoice with 950 cost and 60 GST - they couldn’t, without knowing the adjustments required.
Its cleaner and simpler for both you and your client to have transparency. Why would you want to hide rather then promote the discount you are offering? Better to have a long invoice then breach the tax laws,
You could total all the cash discounts for a Invoice and combine them into a single line.
If the commission discount rate is constant for all premiums, then total premiums x 10% x discount rate.