Gross vs. Net: how to calculate sales tax correctly

Sometimes it’s like being jinxed: Every time you calculate the value of a commodity Convert from gross to net want, a different result comes out? Don’t let it keep you from more important tasks and generate new sales instead. Today I will show you how you even without a complicated rule of three any VAT rate calculate quite simply and save yourself unnecessary trouble in the future!

Table of contents

  1. Definition of gross and net
  2. Calculate from net to gross
  3. Calculate from gross to net
  4. Caution, trap: do not simply subtract 19 percent from the gross amount
  1. My personal tip for you: test lexoffice one year for free!
  1. Can a sales tax calculator help?
  2. Which VAT rate to use?
  3. Difference between value added tax, sales tax and input tax?

Gross or net: what is it actually?

Surely you’ve come across the terms "gross" and "net" many times before. Not only do they come up when calculating VAT, but also, for example, when you create a payroll yourself (gross vs. net) or when you calculate the weight of an item (net weight = weight excluding packaging).

In general, you can define gross and net as follows:

  • Gross = the whole
  • Net = a part of the whole, minus a certain amount (e.g., a part of the total). B. the sales tax)

In terms of quoting prices, then, this means that the Gross price the Contains value added tax and the Net price the adjusted Pricewithout sales tax is. In the case of a tax-free benefit, the amount of gross and net is identical.

Mnemonic bridges

Do you find it difficult to distinguish between gross and net amounts?? These mnemonic devices will help you:

  • Gross = gross (t)al high price, Net = net(t) so much
  • Gross = bevor anything is deducted, Net = now that something has been deducted

Calculate sales tax – from net price to gross price

You would like to know, how much value added tax You on your article markup you have to sell it to the end customer? This is a simple percentage calculation: Multiply the net price by the factor, which corresponds to the selected sales tax rate:

19 percent tax: net price x 1.19 = gross sales price

7 percent tax: net price x 1.07 = gross sales price

Would you like to find out only, How much the tax amount itself, which you must later pay to the tax office as value added tax, calculate like this:

19 percent tax: net price x 0,19 = VAT due

7 percent tax: net price x 0.07 = VAT incurred

Example 1: 19 percent sales tax

A product costs net 200.00 euros and should be sold at 19 percent VAT.

200,00 Euro x 1,19 = 238,00 Euro (gross price)

200.00 euros x 0.19 = 38.00 euros (VAT amount)

Example 2: 7 percent reduced sales tax

A food item with a net value of 5.00 euros is to be taxed at the reduced VAT rate of 7 percent:

5,00 Euro x 1,07 = 5,35 Euro (gross price)

5.00 Euro x 0.07 = 0.35 Euro (VAT amount)

Invoices to private individuals

If you sell your services to private persons (Consumer) you have to Always indicate gross prices. The indication of net prices is considered non-transparent by end customers and can therefore result in warnings under competition law. Statements such as "Prices do not include. of the legal value added tax" are permitted in Germany exclusively with enterprises.

Calculate sales tax – from gross price to net price

This calculation method is most likely to cause difficulties: You have the Gross price including sales tax and you have to find out, how much the product or service is worth net. This is interesting, for example, if you buy something as an entrepreneur and you can claim the VAT amount as input tax at the tax office.

The Calculate net price for a given gross amount by dividing the gross price by the factor corresponding to the selected VAT rate:

  • 19 percent tax: gross price : 1.19 = net price
  • 7 percent tax: gross price : 1.07 = net price

Do you want to determine the amount of tax included in a gross price, calculate analogously:

  • 19 percent tax: gross price : 1.19 x 0.19 = tax amount
  • 7 percent tax: gross price : 1.07 x 0.07 = tax amount

Example 1: 19 percent sales tax

You want to buy a notebook as a company at a price of 476.00 Euro including 19 percent VAT. To calculate the net amount and the tax amount:

476,00 Euro : 1,19 = 400,00 Euro (net price)

476,00 Euro : 1,19 x 0,19 = 76,00 Euro (tax)

Example 2: 7 percent reduced sales tax

A restaurateur buys food for the evening business in the restaurant at a price of 385.20 euros including 7 percent reduced VAT:

385,20 Euro : 1,07 = 360,00 Euro (net price)

385.20 Euro : 1.07 x 0.07 = 25.20 Euro (tax)

Attention, trap: do not simply deduct 19 percent from the gross amount

Since this mistake is made frequently, I would like to address it briefly: To get from the gross to the net, you may use your calculator to do not simply deduct 19 percent. The following example shows why this does not work:

From net to gross:

100 Euro net + 19 percent (19 Euro) = 119 Euro gross

From gross to net:

119 Euro gross – 19 percent (22,61 Euro) = 96,39 Euro

You see: With this approach, you no longer end up at the original net price, but below it. Blame it on the fact that the Reference base changed Has: In the first step of the calculation you have calculated the 19 percent of 100 Euro – but in the second step of 119 Euro. Therefore, always use the above calculation method for your calculation of the amounts.

My personal tip for you: try lexoffice for one year free of charge!

All beginnings are difficult. With lexoffice you can make your life as a business much easier. Finally, you no longer have to deal with gross or net and other accounting quarrels. Start-ups and small businesses can now make real savings:

  • a free test year when setting up within the last 24 months
  • Savings: 12 x 16,90 Euro = 202,80 Euro
  • uncomplicated processing without subscription obligation
  • automatic end of membership after 12 months
  • Access for multiple users and the tax advisor

Would you like to know what the lexoffice software can do for startups and small businesses? In my lexoffice test report I will show you why it is especially suitable for beginners without previous experience!

Frequently asked questions about the calculation of sales tax

Can a sales tax calculator help?

If you still find it difficult to calculate the sales tax for your sales correctly? Simply use for your services a Sales tax calculator on the Internet. Do you often need this calculation? Then tinker with the help of Excel simply use a sales tax calculator yourself. Simply transfer the above formulas into your Excel sheet. For example, this is what your gross to net calculation calculator might look like:

In the A1 field of your calculator, you will later enter the gross amount to be converted.

Reading tip

When do companies actually have to use which VAT rate?

What VAT rate you should charge your customers on the net amount or. in the store is required by law in Germany. Here are two tax rates to be distinguished:

  • Standard tax rateIn the second half of 2020, the standard tax rate was 16 percent. Starting in 2021, it will be 19 percent again. It is applied to all products and services that are not tax-exempt or subject to the reduced VAT rate according to § 4 of the VAT Act.
  • Reduced tax rateThe reduced tax rate according to § 12 Abs. 2 UStG from 2021 7 percent (in the second half of 2020 it was temporarily 5 percent). It applies, for example, to food, live animals, wood or printed matter, cf. for this purpose, see Annex 2 of the Turnover Tax Act.

By the way: Small business calculate in Germany only the net amount and beat no VAT at all on. You therefore do not have to submit an advance return for sales tax. Since they also cannot deduct input tax from purchased services, small entrepreneurs do not need a VAT calculator.

In the Founder’s Encyclopedia, you can also read about when you as a company have to submit a sales tax return and an advance sales tax return.

What is the difference between value added tax, sales tax and input tax??

With the Value added tax you tax the "Added value" created in the production of a product or service. It is an umbrella term under which sales tax and input tax are located. The Value added tax accrues on goods or services that you yourself sell to consumers or businesses provide. You can do yourself deduct VAT from incoming invoices", this amount paid to the tax office is known as the Input tax.

Frequently asked questions in accounting

What do I have to do now?

The correct calculation of gross and net is extremely relevant, especially when writing invoices and purchasing goods or employing subcontractors. Use a program for your company to create your invoices and gain valuable time for your business.

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