For everyone who sits down to create their first invoice (or somewhere along the way), the question arises: What’s the difference between net and gross pricing? Which format is right for my invoices?
Not to worry. In this article, we’ll explain quickly and simply what the differences are, and how to apply one or the other in your invoices with ready-made invoice templates.
What’s the difference between net and gross pricing on invoices?
Before we get into the details: no matter whether you apply gross or net pricing on your invoices, the information that should always be clearly stating on an invoice is always the same. The difference between the pricing formats applies only to the individual invoice lines.
The net vs. gross pricing format affects only the invoice lines and the final total for the invoice will be identical.
Net pricing on an invoice
In an invoice using the net price, all products or services presented in the lines of the invoice will be in net price form. This results in the total net price for the invoice, in other words, the total before the VAT is added.
Based on the net total, the gross total is determined by then adding the necessary VAT (20% for most products in the UK, but sometimes 5%, 0%, or exempt depending on your business and the products or service you’re providing).
Gross pricing on an invoice
An invoice that uses gross pricing is then precisely as you’d expect: all of the products or services on the invoice are listed in their gross prices. This means that each invoice line includes the VAT. The sales tax is then shown separately as a part of the total.
Your invoice template: net or gross pricing
The second question that likely arises is whether your invoices should use gross or net price format. And maybe when it is appropriate to use which.
In this case it depends on a couple of different factors:
- Is your customer a private individual, so you’re selling B2C?
- Or, is your customer also a business, making the sale B2B?
If you are registered as self-employed or a small business and selling to a private individual, then you might find it better to use the gross pricing format. Your customer sees the total price and can subtract the tax to be able to determine the net amount.
If you are registered as self-employed or a small business and you are selling to another business, the net price is generally more appropriate, as (if the business is VAT registered they will be able to claim back the VAT charged in your invoice. In this sense, they will be interested in viewing the total price without the tax included - the net price.
Net invoice and gross invoices in your invoicing software
While it’s important to be able to create invoices quickly yet also avoiding potentially costly (either literally or in terms of time-wasted) errors, it’s also useful to have easy options to customise the invoice based on the needs of your business.
In this sense, your invoicing software should provide you with a simple way to switch between gross and net pricing on your invoices, according to the customer or your preferences.
With Debitoor invoicing, it’s possible to change from net to gross and back on an invoice with just a click. Here’s how:
- Open a previously created invoice or start a new invoice
- Scroll down to near the bottom of the page where you will see an ‘Options - Show more options’ text. Click this
- You’ll see an option labeled ‘Price Format’. This can be switched from NET to GROSS and back again*
- Note that if you have changed the price format after adding product lines, you should review the prices being shown and adjust if necessary.
That's how easy it can be!