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How are tax rates calculated for catalogue items?

When adding a tax rate to an item, the price entered for the item will be inclusive of tax. For example, if you add an item worth £120 and select a tax rate of 20%, the total price of the item will remain unchanged. Here, the calculation will assume £100 as the pre-tax price, and 20% (£20) is assumed to be the tax rate. The price of the item will not increase once a tax rate is added.