# Tax calculations and rounding

Brightpearl calculates tax per item and then multiplies it by the item quantity - an item level tax calculation.

Some other systems, such as Sage, Xero and QuickBooks first multiply the item net price by qty, and then calculate tax on the total - otherwise known as a line level tax calculation.

Both UK and US tax rules allow tax to be calculated in either way. However, although both methods are perfectly acceptable, it means that when comparing invoices generated in Brightpearl to those in other systems, the tax amounts may not match exactly, especially when dealing with low-priced items being bought or sold in high quantities.

Most of the time, for most merchants, all software will show exactly the same values.

### Item-based calculation

Here's how Brightpearl calculates order totals.

The reason Brightpearl works this way is to support direct entry of prices inclusive of tax, for all item values and quantities.

For this demonstration consider an item with a price of 1.95. To get an order total of 1.95, additional steps must be performed: ### Line-based calculation

For the same item, using a line based calculation, entering an item price including tax as 1.95 gives an order total of 1.96, which is more than the original item cost. ### Large quantities

Here's a further example of how order totals can vary slightly when quantities are high. If charging a retail price of 0.28 (inc tax), and selling 1000 items, one would expect the order total to be 280.00.

Firstly using item-level calculations (as per Brightpearl): And the same 1000 items using line-level calculations: ### Tax rates at an order level are not always exact

For the item-based example of 1000 items, the order tax amount of 46.70 is not in fact exactly 20% tax - it's 20.017%.

The same principle applies if you sell low price items. In the first example of an item priced at 1.63 with 0.33 tax, the effective tax rate is 20.25% (using a line based calculation). As soon as you have to round order totals to 2 decimal places (because you can't pay fractions of a penny), there will always be some deviation from the exact tax rate.