Why are VAT rates applied differently to recurring charges on invoices?

If you notice that VAT rates are being applied inconsistently to recurring charges across different customer invoices, even when customers have the same tax configuration, this is likely due to differences in how taxes are defined at the subscription level.

How VAT application works

Lago applies VAT to invoices in two ways:

1. Charge-level tax rates: When tax rates are defined on individual recurring charges within a subscription plan, those specific rates are applied to each charge

2. Customer-level tax rate: When tax rates are not defined on individual charges, Lago falls back to applying the customer's default tax rate to the entire invoice

Common cause of inconsistent VAT application

The most common reason for inconsistent VAT application is when customers are on different versions of subscription plans:

• Older subscription plans may not have tax rates defined on individual recurring charges, causing the customer's default tax rate to be applied to all charges on the invoice

• Newer subscription plans have tax rates properly defined at the charge level, resulting in each charge being taxed according to its specific configuration

How to resolve the issue

To ensure consistent VAT application across all customers:

1. Review your subscription plans and ensure that tax rates are defined on each recurring charge

2. Update any older subscription plans that may be missing charge-level tax definitions

3. For existing customers on older plans, consider migrating them to updated subscription plans with proper tax configurations

Once customers are moved to subscription plans with properly defined charge-level tax rates, future invoices will apply VAT consistently according to each charge's specific tax configuration.

This article reflects guidance drawn from customer case resolutions. It is not officially supported documentation and may not apply to all situations.