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Most e-commerce websites display Gross total minus a discount but how does this affect VAT? Does the discount need to be taken from the Net Total? Unfortunately it has been difficult to find a definitive answer due to most resources referring to early settlement discounts.

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You pay tax on what you have paid for an item. And what you have paid is the gross price minus discount. You have not paid the RRP (recommended Retail Price) or teh Gross Price.

For my Point of Sale applications, the clients wanted to display the discount on each line item and then the total at the end - because it looks larger. So thats another reason to show it at the end.

The VAT is calculated as (Total before VAT - Discount) * Rate. And I am sure they are calculating it correctly.

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  • Thanks this helped. The Discount needed to be minus VAT too to allow the invoice to look correct for each line item. The items in the order were all exempt of VAT whereas usually they would have been inclusive of VAT.
    – Robert
    Commented Aug 7, 2023 at 14:40

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