How to calculate MVA on an invoice?
The procedure is simple; it’s just a matter of putting it into practice. To address any doubts you might have, we will show you an example of how to calculate MVA. You can apply it to any business in the following way:
Let’s suppose that there are three companies involved in a production process. The first company is called HAY and it produces hay for cattle. The second company is LIVESTOCK and they have a dairy farm. The last one is DAIRY, which produces and sells milk to the end consumer.
When HAY sells hay to LIVESTOCK, they will charge the corresponding selling price. They should also add an extra MVA percentage to this amount that will also be charged to the client. For example, if the selling price is 113,00 kr and the tax percentage is 25%, they would charge a total of 141,25 kr.
How to calculate the MVA amount?
The selling price can change depending on the final cost of your goods or services. However, the tax percentage is subject to the amount required by the Tax Agency. Considering this, how was the amount of 141,25 kr calculated in the previous example?
To answer this, you need to use the corresponding formula. First, you divide 25%, which is the MVA percentage, by 100. This will give you a result of 0.25. In other words:
MVA% = 25% / 100 = 0.25
Then, you multiply the selling price, also known as the taxable amount, by the percentage. According to the example, this is 113,00 kr (which is the taxable amount) times 0.25 (the result of the above formula). This equals 28,25 kr (MVA amount). The equation looks like this:
MVA amount: taxable amount x MVA% = 113,00 kr x 0.25 = 28,25 kr
Total amount with MVA = 113,00 kr + 28,25 kr = 141,25 kr . This is the total price of the hay including MVA.
How to calculate the total price with MVA included?
There is a simple, efficient and quick way to do this that will help you calculate the total amount or cost including MVA using a well-known formula. It consists of adding a one to the tax percentage that we saw earlier: 1 + 0.25 = 1.25
Then, you multiply this number by the taxable amount, or selling price, which according to the example is 113,00 kr. After multiplying these, you will notice that it gives you a result with MVA already included (total amount), which is 141,25 kr. The formula looks like this:
Total amount with MVA = 113,00 kr x 1.25 = 141,25 kr
How to calculate a price without MVA?
If you want to know how much a product or service costs without tax, you can calculate this as well. There is a way to calculate the taxable amount by removing MVA. We will continue using the same example to illustrate how to do this.
You have to divide the total amount that will be charged to the end consumer by the Value-Added Tax percentage. If the total cost of the hay is 141,25 kr and the tax rate is 25%, the formula is like this:
Taxable amount = Total amount / MVA (25%) = 141,25 kr / 1.25 = 113,00 kr
To verify that this is the correct result, you can use the following operation:
MVA (25%) = 113,00 kr x 0.25 = 28,25 kr
Total amount with MVA = 28,25 kr + 113,00 kr = 141,25 kr
How to calculate the taxable amount with just MVA
On the other hand, if you only have the total cost of the tax, you need to use a different formula to figure out the taxable amount. You simply have to divide the amount of tax by 0.25, which is the tax rate to be charged.
In other words, if the amount of MVA for the hay is 28,25 kr – according to the applied tax – you have to divide that by 0.25, which gives you the taxable amount. You can see this in the following formula:
Taxable amount = MVA amount / MVA (25%) = 28,25 kr / 0.25 = 113,00 kr
This means that the selling price of hay without MVA is 113,00 kr. You can verify that this result is accurate by using the following formula:
Total amount with MVA = 113,00 kr + 28,25 kr = 141,25 kr
