Mews understands that correct tax reporting is vital for all properties, which is why we carefully calculate tax with your legal environment in mind—ensuring that you are always in compliance with your local tax laws.

To understand how Mews calculates tax, it is necessary to first understand rounding precision and item pricing.

## Rounding precision

Rounding is the process of making a numerical value shorter and simpler by reducing the number of decimals.

For financial transactions, the rounding precision is automatically defined for each currency based on the coins and banknotes that are available. For example, the smallest unit of physical currency in the UK is a penny—or £0.01—so GBP values are always rounded to two decimal places. However, in the Czech Republic, the smallest unit is 1 Kč, so CZK values are always rounded to zero decimal places.

**Tip: **You can override the default rounding precision for tax calculations in your accounting configuration.

## Item pricing

Mews supports both net and gross pricing.

- With net pricing, the price you set up for a product or service is the cost before taxes. The final price will be shown as the the net amount plus tax.
- With gross pricing, the price you set up for a product or service is final and already includes tax.

**Note:** Your pricing strategy is set up by Mews when your property is built, and it can't be changed.

## How tax is calculated

Since each line item on a bill can have its own tax rate, Mews calculates tax per item and rounds it separately. When calculating the tax for an item, Mews first calculates the net price of that item, and then applies the tax rate to get the final tax amount. For example, to calculate a 6% tax on a line item of €100, you must:

1. Calculate the net amount of the line item:

(Price of item × Total %) / (Total % + Tax %) = Net amount

(€100 × 100) / (100 + 6) = 94.34

2. Multiply the net amount by the tax rate to get the tax amount:

(€94.34 × 0.06) = €5.66

Calculating tax at this level—rather than calculating it from a combined total of items—also guarantees that you always pay the same amount of tax for an individual item, regardless of how the revenue is distributed.

For example, consider an item priced at €0.01 with a tax rate of 15%. If you calculate the tax per item, the amount of tax paid for this particular item would be €0 every time it is calculated. However, if you calculate tax from a combined total of items, the amount of tax that you pay for this specific item would be different with each new calculation:

- If the item was combined with 9,999 similar items for a total of €100, the tax amount that you would pay for the item would be €0.1304.
- If the item was combined with 999,999 similar items for a total of €100, the tax amount that you would pay for the item would be €0.130435.

Depending on the rounding precision used at your property, this discrepancy could result in different amounts of tax being paid for the same item over time. Mews calculates tax per item, so you always pay the same amount.