Correct tax reporting is vital to all properties, which is why Mews calculates tax carefully keeping your legal and regulatory environment in mind and ensuring that you are always in compliance with your local tax laws. Tax calculation methods vary according to your legal environment.   
 
To understand the tax calculation in Mews, it is necessary that you first understand the terms, rounding precision and item pricing in Mews. 

 
In this article you can learn about: 

• Rounding precision 
• Item pricing 
• Tax calculation in Mews 
  • Gross-priced properties
    • DACH region
    • Tax rounding correction

 

Rounding precision 

Rounding is the process where you “round off”, i.e., reduce the number of decimals in a numerical value to the nearest number to make it shorter. For financial transactions, the rounding precision is automatically defined for each currency based on the coins and banknotes that are available in that financial environment.

For example, the smallest unit of currency in the UK is a penny, or £0.01, so the system always rounds off GBP values to two decimal places. However, in the Czech Republic, the smallest unit is 1 Kč, so the system always rounds off CZK values to zero decimal places. 

Depending on the rounding precision that your property uses, this discrepancy results in paying different amounts of tax for the same item over time. But since Mews calculates tax per item, you always pay the same amount. 
  
Tip: You can override the default rounding precision for tax calculations in your accounting configuration.  
  
Note: This option is not applicable for properties using Net Pricing such as, properties based within the US or Asia where the prices exclude tax.  

 

Item pricing 

 

Tax calculation in Mews 

 

Gross-priced properties

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.  

To calculate a 7% tax on a line item of €100:  

1. Calculate the net amount: (Price of item × Total %) / (Total % + Tax %) = Net amount.
   For example, (€100 × 100) / (100 + 7) = 93.46 

2. Multiply the net amount by the tax rate to get the tax amount.
   So, for the above example, (€93.46 × 0.07) = €6.54  

In the invoice’s tax summary, Mews calculates the tax from the combined total of items with the same tax rate.  

 

DACH region

To comply with local regulations in this region,

• Mews calculates VAT/ Net, from the gross total of all items taxed per VAT rate, in the invoice’s summary section.
• For each line item:
  • You can view the Gross amount and VAT rate.
  • Mews does not show VAT/ Net amounts. 

 

Tax rounding correction

Note: Applying tax rounding correction on bills is available for properties using gross pricing that are not in the DACH region.

In the case of bills with several items, you may sometimes notice a small difference between the total tax amount in the tax summary versus the sum of each item’s tax. This happens especially when systems require adding a large amount of taxes calculated for each item on a bill. They round the summary off to the currency's precision which seems like a discrepancy in calculation.

For example, consider an item with a price €0.01 and a tax rate of 15%.  

• The tax calculated per item for this particular item is €0. 
• However, when you calculate the tax summary for a combined total of items, the amount of tax that you pay for this specific item varies with each new calculation: 
  • If you combine this item with 9,999 similar items for a total of €100, the tax amount that you pay for the item is €0.1304. 
  • If you combine this item with 999,999 similar items for a total of €100, the tax amount that you pay for the item is €0.130435. 

To eliminate such tax rounding discrepancies and mitigate the risk of issues when integrating with other systems, select the Tax rounding correction option in the Accounting configuration settings which adds a corrective line to the bill. 

The tax rounding correction appears for each tax rate with a non-zero rounding correction.

The eliminates any difference in the tax calculated from billing items with the tax calculated from the bill total.  

You can learn more about the accounting configuration settings here.