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% 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).
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
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
- Sales tax registration/sales tax registration
- 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.