If you’re a small business owner, you most likely have to charge your customers taxes, which an invoice allows you to collect. A tax invoice is specifically for registered vendors to claim tax credits for their purchases. It details payable tax along with other information. Usually, tax invoices are issued when goods are sold to be resold. It’s important to note that the person receiving the tax invoice (i.e., registered buyer) is not usually the end customer.
Typically, tax invoices include the following information:
- Issue date of the invoice
- A unique invoice number
- Contact information for both the buyer and the seller
- A tax identification number
- A description of the items
- The number of items
- The price of each item
- The total amount charged for tax
- The total cost of the items
- Signature to make it a binding legal document
When a tax invoice is created, there should be three copies. The first copy should go to the buyer, and the remaining two will go to the seller. At the end of the transaction, a final copy should be submitted to a government authority. The particular authority that the tax invoice will be submitted depends on if it is significant for a particular country.
This is because tax invoices are important in every country. These invoices play a critical role in a state’s tax system. At the end of a financial year, all tax invoices should be submitted to their governing authority. From there, the authority can distribute tax relief. All in all, tax invoices ensure that taxation is done properly, and no one evades taxation.
How Does a Tax Invoice Differ From a Regular Invoice?
Unlike a regular invoice, tax invoices are issued to registered buyers by registered sellers and provide specific tax details. On the other hand, traditional invoices are issued by businesses to customers detailing what they owe. In short, you can differentiate a regular invoice from a tax invoice based on whether there is a goods and services tax (GST) aspect.
For this reason, to understand the difference between invoices, you must also understand GST. The GST is a tax on goods and services sold domestically. GST is used by most countries and is included in the final price of a good or service, which is then paid by the consumer. From there, the seller passes the tax to the government.
Another key difference between the two is when they should be issued. An invoice should be issued when a product or service is sold to the final customer. Tax invoices are typically issued when a supply of goods is sold with the intention of resale in the future.
Are Tax Invoices Receipts?
Even though tax invoices and receipts provide individuals with similar information, they are not the same and have specialized purposes. To begin, tax invoices are issued to a registered buyer with tax details about the transaction. Although receipts are similar in the sense that they provide a breakdown of the goods purchased, a tax invoice requests payment, while a receipt is a record that a payment has been made.
Additionally, receipts don’t have a set standard like tax invoices. This means that businesses have more liberty when it comes to providing receipts to customers. On the contrary, tax invoices require very specific information.
When to Send Tax Invoices
There are several scenarios in which you should issue a tax invoice. To start, a tax invoice should be issued by a GST-registered person. In the case that someone is GST- registered, they should be sent a tax invoice. This is because the tax invoice lists every detail relevant to the transaction and will include the amount of GST charged.
Another important time to send a tax invoice is when a good is sold with the intention of being resold at a later date. For example, when a buyer is registered and claims GST, they can reduce their overall tax when paying. This technique is known as an input tax credit and can save businesses that resell items money.
Depending on the type of business activity, you might not have a taxable sale and will not need to pay GST. For example, a Canadian business would be exempt from paying GST on:
- Day care services
- Donated goods that nonprofits sell
- Financial services
- Food and beverages sold at schools
- Legal services
- Medical and dental services
- Music lessons
- Penalty interest
- Residential accommodating under a head lease
Sending Invoices to International Customers
When working with international customers, there are a few things to keep in mind. For instance, you will need to consider GST in most countries and value-added tax (VAT), depending on several factors. If you are selling to an Australian business that plans to resell the merchandise, for example, and have a GST turnover of A$75,000 or more connected with Australia, you will need to register for GST.
When sending tax invoices internationally, it’s also important to consider specific countries’ laws regarding tax invoices. For example, in Australia, if you are issuing a tax invoice, you are required to include seven important pieces of information. For example, you need your Australian business number (ABN) to send a valid tax invoice.
In some cases, you might be charged VAT. VAT is a consumption tax, which is added to goods and services bought and sold to be used within the European Union (EU). This means that if goods are sold for export to international customers, they will likely not be considered a taxable supply of goods. If you are doing business from the United States, but the place you supply from is in the EU, you will need to pay attention to VAT. This is because of a reverse charge, which places the responsibility of recording the transaction on the buyer.
Once you have determined which taxes you are subject to, you are ready to create an invoice. Although international laws can often be complicated, sending a tax invoice doesn’t have to be. Skynova’s free invoicing template can help you create a tax invoice in minutes. Our template prompts you to fill in the information needed to create a comprehensive tax invoice for your customers overseas.
How to Create a Tax Invoice Using an Invoice Template
Before you send tax invoices to customers, you need a few critical pieces of information. To begin, you will need to include clear and accurate contact information for you and the customer. Both the buyer’s and seller’s identity should be accurate on the invoice. We recommend that you include not only physical addresses but also email addresses and phone business numbers for you and your customer.
Next, add a unique invoice number to the tax invoice. Additionally, you will need to add the issue date and the due date. Since you will be using a traditional invoice template, what is labeled as the "invoice date" is the "issue date" on a tax invoice. The date of issue is when you created the tax invoice, whereas the due date is the date that payment is due.
After selecting the issue and due dates, you will need to add the items that you sold. Select the "Item" drop-down menu and click "product," if you are providing a good, and add a description. All items sold should have descriptions so that your customer understands each cost. In addition, you will need to add the price of each item, which is known as the "unit price." Once you have inputted the unit price, add the quantity of items. After these items are inserted into the template, the total value owed will automatically populate.
For tax invoices, it’s important that you also include the total amount of GST, if applicable. In some cases, you might want to add the total GST for the entire invoice, while in other cases, you might want to put the GST for specific items. With Skynova’s invoicing template, you can input the GST however you choose.
Sending a Tax Invoice
Once you have completed the tax invoice, you are ready to send it to the customer. Skynova’s free invoice template offers several ways to send tax invoices. Whether you prefer to send the invoice directly from your Skynova account or through email, you can do so with Skynova.
Options for sending your tax invoice include:
- Send directly through the Skynova software
- Download the tax invoice as a PDF and send through email
- Print the tax invoice to send in the mail
Skynova’s invoicing template integrates with other accounting products so that you can accurately keep important business records. Skynova Accounting helps small business owners keep records of expenses, sales taxes, and payments. By using our invoicing template and accounting product, you can streamline the bookkeeping process.
Track and Manage Invoices With Skynova’s Invoicing Software
Tax invoices are critical for businesses selling goods to customers with the intention of resale. International transactions involving tax invoices can become even more tricky. Luckily, with the right platform, business owners can speed up this process while keeping accurate records of transactions.
Our invoicing template is helpful in getting paid faster, but what do you do next? With Skynova’s intuitive platform, we have you covered. Send customers fully customizable receipts to show that they paid and demonstrate professionalism. Additionally, maintain your bookkeeping by using a number of our software products, like recurring invoices and accounting. Instead of stressing out about creating and sending professional tax invoices, make comprehensive tax invoices using our template.