In this article, we'll delve into how tax is calculated within Pabau. Understanding how tax is computed is crucial for businesses to accurately reflect pricing and financial transactions.
Pabau calculates tax based on the country set in your Business Details. There are two primary methods of tax calculation employed by Pabau:
Tax-Exclusive Calculation:
Tax-exclusive calculation is common in countries like the USA. In this system, the tax rate is charged in addition to the item price. For instance, if an item is priced at $100 and the tax rate is 10%, the client will be required to pay $110 ($100 + ($100 * 0.10)).
In this scenario, the tax is viewed as a separate component of the transaction, added onto the item price. Colloquially, the tax represents a distinct portion of the overall "pie," but its size is determined by a percentage of the item price.
Tax-Inclusive Calculation:
Tax-inclusive calculation is prevalent in countries such as the UK and most of Europe. In this system, the tax is included in the item price. For example, if an item costs £100 and the VAT rate is 20%, the client will pay £100 at checkout.
However, behind the scenes, the company needs to account for the VAT, which is £16.67 (£100 / (1 + 0.20) * 0.20). Colloquially, the tax is considered as part of the overall item price, forming one complete "piece of the pie."
NOTE: For guidance on creating and managing tax rates in your account, please consult this article.
By setting the appropriate country in the Business Details section, Pabau automatically applies the relevant tax calculation method when processing payments.
For more guides, refer to related articles below, select additional guides, or use the search bar at the top of the page. These guides will help you get the most out of your Pabau account.
Additionally, to help you fully utilize and understand your Pabau account, we recommend exploring additional guides and resources offered at the Pabau Academy. It offers in-depth video tutorials and lessons, offering a holistic learning experience that can equip you with the essential skills for achieving success with Pabau.