A customer returned an item bought for 230 including VAT; how much of the refund is tax?
Extract the tax from the refunded amount at the rate charged on the original sale. With 15 entered as the rate, a refund of 230 splits into a net sale of 200 and tax of 30. For a partial refund, run only the amount refunded: 115 gives 100 net and 15 tax.
Why split a return at all?
When you made the sale you recorded 200 of sales and 30 of tax owed. Now the customer sends the item back and gets 230. Record the return as one figure against sales and your sales fall by 230 instead of 200 while the recorded tax stays at 30, as if you still owed it on a sale that no longer exists. Splitting it makes each side come down by the right amount.
A full refund
- Find the original sales invoice and take the rate that was actually applied.
- In the VAT calculator, choose extract and enter 230 with that rate, here 15.
- Result: 200 comes off sales, and 30 comes off tax.
Use the rate from the original sale, not today's: if the rate changed between the sale and the return, the refund reflects what was charged at the time of sale. Confirm that point with your accountant if it ever actually happens to you.
A partial refund
Sometimes a customer returns one item from an order, or you agree a partial refund for a fault. Run only the amount refunded, not the whole order:
- Refunding half, 115: net 100, tax 15.
- Refunding one item priced at 57.5 including tax from a larger order: net 50, tax 7.5.
Notice that the tax on the half refund is exactly half the order's tax, because the rate is the same. That makes a quick check on your figures.
The document that goes with the refund
The calculator gives you the figures, but the document you issue for a return follows the rules of your invoicing system. In many systems that is a credit note linked to the original invoice rather than an ordinary receipt. Tools such as the Basic invoice generator and Receipt generator are basic templates and no substitute for a certified invoicing system where one is required of you. Ask your accountant what form is correct where you trade.
Common questions
Do I refund shipping and the tax on it too?
If you refund it and it carried tax, extract it the same way. Whether you must refund it is down to your store's returns policy.
What if I cannot find the original invoice?
Look the order up in your store dashboard, which usually keeps the tax details for each order.