Start with the price equation
A checkout total is not necessarily revenue you can spend. If a price includes transaction tax, part of the customer’s payment belongs in a tax liability. Before comparing payment providers, write down three separate numbers: the net price, tax collected and total paid. The same advertised price can leave different net proceeds depending on whether tax is included or added at checkout.
Use the Tax & VAT calculator with a rate you have independently established for the transaction. It adds or removes a single percentage and reconciles the amounts to the cent. It does not decide whether your business should register, whether a sale is exempt, or which jurisdiction has a claim. Those decisions come before the arithmetic.
A 120 total at an illustrative 20% rate
For an inclusive amount, divide the customer total by 1 plus the decimal tax rate. A 120 total at 20% leaves 100 before tax and 20 in tax. Subtracting 20% of 120 would produce 96, which is not the correct net price. For an exclusive price, multiply the net amount by the rate and add the resulting tax.
| Pricing choice | Before tax | Tax at 20% | Customer pays |
|---|---|---|---|
| 120 inclusive | 100.00 | 20.00 | 120.00 |
| 120 before tax | 120.00 | 24.00 | 144.00 |
These are arithmetic examples in one currency, not a statement that every SaaS transaction attracts 20%. HMRC documents the multiplication and division method for UK VAT. Product classification, customer circumstances and applicable rules must be checked separately.
Source: HMRC: charging VAT · reviewed 17 October 2026.
Check the base used for payment fees
A payment fee can be calculated on the total customer charge, including tax. In an invented quote of 3% plus 0.30, charging 120 produces a 3.90 fee. With 20 of tax inside that total, 96.10 remains after that fee and tax. Calculating 3% on the 100 net price would understate the processing charge by 0.60. Ask which base each line in your quote actually uses.
The payment fee calculator compares documented provider scenarios. For your own proposals, use the provider break-even calculator. Enter the same customer amount and fee scope in both quotes; a lower percentage does not settle who handles tax collection, returns or invoicing.
What changes with a Merchant of Record?
A supported MoR arrangement can move transaction-tax responsibilities to the contractual seller, while the payout still needs to be recorded in your own business accounts. Compare Paddle and Lemon Squeezy by agreement and product scope. Income tax and your own reporting do not disappear because checkout tax is handled by someone else.
Lemon Squeezy’s documentation distinguishes tax-inclusive pricing from adding tax to the set product price. A useful implementation test is to compare the actual checkout total and receipt for a taxable test scenario with the amount you intended to advertise. Keep the tax configuration, invoice and payout reconciliation together.
Source: Lemon Squeezy: Sales Tax and VAT · reviewed 17 October 2026.
Before publishing a new price
Choose the net amount you want to keep before payment fees. Decide whether the displayed customer price includes applicable tax. Then model payment costs, refunds and currency effects separately. Test a low-value plan as well as your average plan: a fixed charge can consume a larger share of the smaller sale. Keep an internal note of the rate and fee assumptions used, so a teammate can reproduce the decision.
Start a shortlist in the payment provider directory, check seller-country eligibility, and save the calculator URL alongside each quote. Revisit the scenario when your country mix, average ticket or pricing model changes. A clear price equation is more useful than an unexplained “effective fee” copied from another business.
Compare current provider profiles, country coverage and fees in the directory.
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