What Is a Tax Invoice

All business owners and freelancers have to deal with taxes. It is an unavoidable administrative task. All goods and services provided by a business or individual fall under a tax bracket. This is reflected in the tax invoice. Keep reading to know more about a tax invoice, how it is made, and why you should be using them.

Below, we’ll cover:

  • What Is a Tax Invoice?
  • Why Is a Tax Invoice Necessary?
  • How to Create a Tax Invoice?
  • Is Tax Invoice a Receipt?

What Is a Tax Invoice?

The dealer sends a tax invoice to the purchaser with all the tax details listed. The details include the description, quantity of goods purchased, the value of the goods and services, and finally, the total taxes levied. A tax invoice is a final bill that a dealer sends to the purchaser.

A taxable sale needs to be supported with a tax invoice so that you can claim your tax benefits for the purchases made. Tax invoices are often issued with the aim of re-selling the same goods and services.

Why Is a Tax Invoice Necessary?

According to the law, it is required by a business to charge various taxes, be it the GST, VAT, or the HST. The company levies taxes from its customers on the goods and services purchased. The tax invoice represents a brief and concise summary of the business transaction. The tax invoices are useful when the business is being audited monthly, quarterly, or yearly.

Tax invoices are drafted for customers who are registered within the Goods and Services Tax. This implies that most transactions are happening between businesses and goods are being sold in bulk.

Here is why a tax invoice is necessary:

  • To establish the vendors claim to deduct input tax that occurred on their standard rated purchases
  • To determine the items that fall under the taxable period.
  • To know the time frame within which the claim for input tax can be made based on the tax invoice given by the supplier
  • The date listed on the tax invoice defines the specific day from when the input tax is accounted for.

How to Create a Tax Invoice?

Creating a tax invoice can seem intimidating, but in reality, it is a straightforward process. A tax invoice needs to have the following details to make it valid:

  • The number and date of the invoice
  • The name of the customer
  • The shipping and billing address
  • The title of the document should clearly say “TAX INVOICE" in capitals
  • The seller's name, identity, and business contact details
  • An organized list with a description of the good and services purchased by the customer, with the value and sub-total
  • The tax applicable for each item
  • The total value of the bill, including the tax
  • The signature of the supplier
  • Bank details and payment options

A tax invoice can be made easily on MS Word Office, using the software templates available. Additionally, you can download online templates from the invoicing software WeInvoice to make the entire process easier and much more organized.

Follow the steps to make a tax invoice on MS Word:

  • Start a blank document on Word and create a heading with the words “TAX INVOICE.”
  • On the right-hand side of the header, type in your business details. Be sure to include your name, address, contact number, email id, and company logo.
  • On the left-hand side, enter the client’s information. Again, be sure to include all the details.
  • Next, enter the date of the invoice and the due date for payments. Also, add in the unique invoice number on the right.
  • Now you need to enter an organized list of all the goods and services bought by the client- with item descriptions and cost per item.
  • Calculate the subtotal and add in the applicable taxes, shipping fees etc. The total should be clear and bold to make it stand out in the invoice.
  • Keep a notes section where you can enter your preferred payment method and other relevant information.

Is Tax Invoice a Receipt?

This is a commonly asked question among new business owners. Vendors create invoices and receipts as a record for themselves and the buyers use them to record the goods and services. While tax invoices and receipts represent similar pieces of information, they are two separate financial documents.

An invoice represents a request for payment for the goods and services provided to the customer or the client by the vendor. The invoice includes the cost of goods and services, the number of items bought, any discounts given, taxes levied, and the total amount due.

On the other hand, the receipt is a document that acknowledges the payment and finalization of a sale. It can also be shown as proof of ownership of an item. The receipt lists out all the goods and services bought, the cost, discount applied, taxes levied, and the payment method used.

It is clear to see that the receipt and invoice represent two different ends of a business transaction. To briefly summarise, the invoice is a request for payment while the receipt is proof of payment.

Hopefully, this article will help in creating a solid tax invoice for your business needs. At WeInvoice, you can find a wide range of templates that help you make the best invoice for business requirements. We provide you with templates and invoice generators that make the entire invoice generation smooth and efficient.

FAQs

Why is a tax invoice necessary?

A tax invoice is necessary for any business transaction between a vendor and a client. Tax invoices are essential for claiming tax benefits and company audits.

What is the most appropriate method of sending a tax invoice?

Once you have created your tax invoice using templates on MS Office or WeInvoice, you need to save the document in a PDF format to avoid tampering. The best way to send invoices is via email or post. It is advisable to attach a brief note that summarises the most crucial parts of the invoice.

So, wait no more, and create your own tax invoice with WeInvoice. Download, customize, and print your favorite tax invoice templates and get started.