I am submitting an invoice consisting of several line items, each of which carry UK VAT at 20%. The total comes to £1210.83 and the VAT amount should read £242.17, but when I view the invoice it actually records the VAT at the bottom as being £242.19. I realise this is due to various rounding errors but what is the correct procedure of reducing the VAT amount by £0.02?
Manager calculates VAT amount per each line item, rounds them and then totals them. This is actually how almost every accounting system does it. It’s industry standard.
In future, you will be able to see individual tax amounts on line items so you can see how it has been calculated.
If you check, you will see that the tax regulations under which you operate allows for calculating tax either on the subtotal of an invoice or on individual line items. As long as what you calculate is consistent with what you report, there will be no problems. Further, sometimes this process will round up, sometimes down. So over a reporting period, the difference may be very small or zero. Tax authorities are very aware of these issues.
The company I am invoicing to also uses manager. The problem is that they enter my non-VAT amount and this leaves a 2p difference because at their end it calculates it on the single line. I’ve advised them to just enter the full amount including VAT and then everything works out fine.
Thanks for your help and to you @Tut for making that point clear.