VATTally

PRICING GUIDE

How to calculate VAT on discounts

Updated 21 August 2026 · 4 minute read

The order matters. Apply a genuine discount to the selling price first, then calculate VAT on the discounted amount. In plain terms: a customer should not pay VAT on an amount they did not pay for the supply.

Example: exclusive price

A service costs R2,000 excluding VAT and you offer a 10% discount.

  1. Discount: R2,000 × 10% = R200.
  2. Discounted value before VAT: R2,000 − R200 = R1,800.
  3. VAT: R1,800 × 15% = R270.
  4. Final total: R1,800 + R270 = R2,070.

(R2,000 − R200) × 1.15 = R2,070

What if the advertised price includes VAT?

Apply the discount to the inclusive price, then use the VAT fraction to split the new total. For example, R2,300 including VAT less 10% is R2,070. The VAT portion is R2,070 × 15 ÷ 115 = R270, leaving R1,800 before VAT.

Show the discount clearly

For a simple audit trail, display the normal selling price, discount, amount after discount, VAT and final amount. If you issue a credit after invoicing, the VAT record may need to be corrected with an appropriate credit note. The correct document and timing can depend on the facts.

Use a consistent basis: do not subtract an exclusive discount from an inclusive price without first converting it, or your VAT breakdown may be wrong.

Use VATTally’s quantity and discount calculator to calculate an invoice total in either price format.