A tax-inclusive price is not the same as a tax-exclusive price

You sell a digital guide for £24 and a customer reaches checkout expecting to pay £24. Then you realise the price already includes 20% VAT, or that VAT will be added afterwards. The customer sees £28.80 instead, while you discover that the amount available to you is not the same as either figure. The difference starts with one choice: whether your displayed price is tax-inclusive or tax-exclusive.

The two prices use different maths

With a tax-exclusive price, you start with the amount you want to charge before tax. Add the applicable tax rate to find the customer’s total. At 20% VAT, the calculation is £24 × 1.20 = £28.80. The £4.80 difference is tax collected from the customer, not extra revenue for you.

With a tax-inclusive price, you start with the customer’s total and work backwards. The pre-tax amount is £24 ÷ 1.20 = £20. The tax portion is £24 − £20 = £4. If you treat the full £24 as revenue, your margin calculation is overstated by £4.

Why this changes your margin

Suppose your digital product costs you £6 per sale in fulfilment, support and other costs you have chosen to count. If you display £24 including 20% VAT, the amount left before those costs is £20, so your simple contribution is £20 − £6 = £14. If you display £24 excluding VAT, the customer pays £28.80, and your contribution before other costs is £24 − £6 = £18.

That is not a reason to add tax on top automatically. It is a reminder to decide which number your target margin is based on. If you want £24 before tax, a tax-inclusive price would need to be £28.80 at a 20% rate. If your audience is likely to compare the displayed total with a fixed budget, the higher figure may affect conversion even though the pre-tax amount is unchanged.

What customers expect to see

A customer normally reads the prominent product price as the amount they will pay. A tax-inclusive display makes that expectation straightforward: the listed £24 remains £24, subject to any clearly stated additional charges. A tax-exclusive display can be appropriate where customers are used to business pricing or where tax genuinely depends on checkout details, but the tax treatment needs to be visible before payment.

1. 1Choose whether your main audience thinks in consumer totals or business net prices.
2. 2Write the tax treatment beside the price, not only in a policy page. For example, say “£24 including VAT” or “£24 plus VAT where applicable”.
3. 3Check the final checkout amount from a customer’s point of view.
4. 4Record the pre-tax sale, tax collected and any processing fee as separate figures.
5. 5Use the same treatment in discount messages, invoices, email campaigns and sales conversations.

Discounts make the distinction easier to miss

A discount can apply before tax or to the tax-inclusive total, depending on how your checkout and tax rules are configured. For example, a 25% discount on a £24 tax-inclusive price produces a customer total of £18. At 20% VAT, that contains £15 before tax and £3 VAT. If you instead reduce the pre-tax price from £24 to £18 and then add VAT, the customer pays £21.60. Both calculations may sound like “25% off”, but they do not produce the same total.

Before publishing a promotion, test the exact wording and amount. If you sell through store.fan, use the checkout and payment settings available to your account, and keep a record of the result. Store.fan takes 0% of sales, while Stripe’s own processing fee still applies; that fee is separate from tax and should not be mistaken for tax collected.

Build a price you can reconcile

Start with the amount you need before tax. Then decide whether that amount should be shown directly or converted into a tax-inclusive customer price. Keep a small worksheet with four columns: displayed price, tax rate, pre-tax amount and tax amount. For a £24 inclusive price at 20%, enter £24, 20%, £20 and £4. Add your payment processing fee separately, because it reduces the payout but does not change the tax-inclusive calculation.

Your storefront should support a clear path from product page to payment. Store.fan gives you a storefront at store.fan/yourusername, and its payments features connect sales to your own Stripe account, where money goes straight to you. You are still responsible for checking your tax setup, but separating the figures makes your payout easier to compare with your sales record.

If you sell courses, memberships or downloads, the same principle applies to each offer. A £100 annual membership including 20% VAT contains £83.33 before tax, because £100 ÷ 1.20 = £83.33 when rounded to two decimal places. That rounding means your records may show pennies that need a consistent rule, particularly across recurring payments or multiple items in one order.