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taxes

What is a tax invoice? Purpose and key elements

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.

Tax invoice meaning


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% goods and services tax. Generally speaking, a tax invoice would show the subtotal without tax ($100), the tax payable (10% or $10) and the combined total ($110).

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Why are tax invoices important?


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.

When to use a tax invoice


Requirements for tax invoices differ from country to country. That said, some of the most common reasons to use a tax invoice include:


  • To show that your business is entitled to collect tax on transactions.
  • To show which items on an invoice are taxable and which exclude tax (if applicable).
  • To determine the accounting period in which tax is to be accounted for, e.g. monthly, quarterly or annually.

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Key elements of a tax invoice


Generally speaking, the main elements to include in a tax invoice are as follows:


  • The words “Tax Invoice”, usually at the top of the invoice
  • Name, address and contact details of the seller
  • Invoice number
  • Date of issue of the invoice
  • Name and address of the buyer
  • Australian Business Number/Australian Business Number
  • The quantity of goods/services
  • The price per unit without tax
  • The tax payable per unit
  • Subtotal without tax
  • The total amount of tax payable
  • The combined total including taxes
  • Payment details
  • Terms of payment


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.

Tax invoice example


Here’s an example of a typical tax invoice format:

Tax Invoice

ABC Business

ABN: 12 345 678 910

123 Main St

Anytown AUSTRALIA

Bill to  XYZ Customer

             456 Main St

             Anytown AUSTRALIA

Invoice number   1234

Date    01/01/2022

Due date    08/01/2022 

Description

Unit price

Tax

Total

Item 1

$100

$10

$110

Item 2

$50

$5

$55

Item 3

$100

$10

$110

Item 4

$75

$7.50

$82.50

 

Subtotal

$325

Tax

$32.50

Total with tax

$357.50

Balance due by 08/01/2022

Payment details:

Account name: ABC Company

Account number: 1234 5678

Tax invoice best practices


Good invoicing processes help to keep your cash flow in check, maintain accurate accounting records and meet your tax obligations. Follow these best-practice tips:


  • Know what to include in your tax invoices: This can differ from country to country, so check the rules with your local tax authority.
  • Don’t skip the details: Make sure all the essentials are included and that your invoice is as easy as possible for customers to understand.
  • Keep records: Maintain up-to-date records of all your invoices in a central location. 
  • Follow up unpaid invoices: Stay on top of invoice due dates to avoid payment delays that can negatively impact your cash flow.


QuickBooks’ invoicing software makes it easy to create professional tax invoices and accept payments in one place. 


With QuickBooks invoicing features, you can send custom invoices, automate sending invoices to repeat customers, schedule automatic invoice reminders and streamline your record-keeping. Financial statements update in real-time, immediately reflecting shifts in your accounts receivable and bank account balances.



While every care has been taken to ensure the accuracy of the information presented as at 12 April 2024, Intuit is not providing you with professional advice and we recommend you obtain your own professional advice. Intuit is not liable for your use of the information presented.


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