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Hi I’ve been experiencing some conflicting theories to the question. Is sales tax calculated after trade discount and before cash discount or is it calculated after both discounts are deducted? Btw I’m new to this site. So thanks in advance for answering.
In the UK, sales tax (VAT) is calculated after trade discounts (the after-discount amount is the net price being charged) and also on the assumption that the cash discount will be taken. Even if the cash discount is not taken, the sales tax is not recalculated.
Eg Full price of goods = $1,000
Trade discount = 10%
Settlement/cash discount = 5%
VAT rate = 20%VAT = 1,000 x 90% x 95% x 20% = $171.
The invoice would look like:
Net selling price = 900
VAT = 171
Gross amount 1,071Terms: 5% discount for payment within 30 days.
If paid within 30 days, the payment should be 900 x 95% + 171 = 1,026
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