A tax invoice is a specific type of invoice showing the amount of tax payable on a transaction. If your business charges tax on goods or services, this amount should be itemised on a tax invoice.
So, how exactly do tax invoices work and what should you include in one? Let’s take a look.
Like a regular business invoice , a tax invoice is a document used to itemise and record a transaction between a supplier and a buyer. What makes a tax invoice different is that it also includes the amount of tax payable as part of the transaction.
For example, let’s say a business needs to create an invoice for $100 worth of goods and services, plus collect 10% sales tax. Generally speaking, a tax invoice would show the subtotal without tax ($100), the tax payable (10% or $10) and the combined total ($110).
Tax invoices are important because they show that a business is legally entitled to collect tax on a transaction.
In many countries, if your business is registered to collect tax, you’ll need to use a tax invoice to be compliant with government tax laws and to ensure your accounting records are accurate for the financial year .
Requirements for tax invoices differ from country to country. That said, some of the most common reasons to use a tax invoice include:
Generally speaking, the main elements to include in a tax invoice are as follows:
The guidelines regarding tax invoices can differ from country to country, so it’s a good idea to check the rules with your local tax authority or a tax advisor.
