Glossary
VAT & GST, the tax inside the price.
VAT and GST are the consumption taxes already inside a UK, EU or Australian price tag. Unlike US sales tax, which is added on at checkout, the tax lives inside your price — and it quietly changes your margin math.
tax inside a price = price × rate ÷ (100 + rate)
tax-inclusive price $80
tax rate 20%
of an $80 price at 20%, $13.33 is tax — you're really selling at $66.67.
against a fixed $30 COGS that leaves $36.67 of margin — 55% of net, not the 62.5% the sticker suggests.
The tax inside the price
In the UK, the price on the tag already contains 20% VAT. Across the EU the same logic applies at standard rates running roughly 17% to 27% depending on the country, and Australia folds a 10% GST into its prices. The display rule in all three markets is the same: the price a consumer sees must be the price they pay, tax included. Registration is not automatic, either — each country sets a turnover threshold below which you don't have to register or charge the tax, and selling across borders brings schemes of its own. The exact lines move, so check the current figures for each market you sell into rather than guessing.
What it means for your numbers
Because the tax lives inside the price, the sticker quietly overstates what you earn. An $80 tax-inclusive price at 20% only ever brings you $66.67; the other $13.33 was never yours — you are collecting it for the tax office. So do the math on the net figure: compute gross margin on the net price, and weigh COGS against that same net, not the tag. A product that looks comfortably profitable against its sticker can be thin once the tax comes out, and a price rise is smaller than it looks — of every extra dollar on the tag at 20%, only about 83 cents is yours. Shopify's tax-inclusive pricing setting (“include tax in prices”) handles the mechanics, showing inclusive prices to shoppers and backing the tax out of each order, but its topline reports still read gross — make netting down a habit.
Made with care by Astral Commerce