what is a tax invoice

Chapter 24

What Is a Tax Invoice?

Author: Riddhi Patel

Jul 29, 2020

What Does a Tax Invoice Mean?

The tax invoice is a legal document issued by a certified seller to the buyer of their goods, showing payable tax. The information on a tax invoice includes a description of goods and quantity, total value, and the tax amount.

What Does a Tax Invoice Mean?

 

When a seller makes taxable sales, they have to send a valid tax invoice to the company or buyer to claim tax credits on purchases, especially when the seller has to resell the goods.

This aspect of the chapter covers:

  • Meaning of Tax Invoice
  • Is Tax Invoice a Receipt?
  • Why is Tax Invoice Necessary?

What Makes Up a Tax Invoice?

Every business has to charge for different taxes, whether VAT, HST, and GST (Goods and Services Tax), from every customer who makes purchases and remits them to the government. Unlike a regular invoice, only a registered vendor has the right to send tax invoices.

The invoice appears like the summary of all tax payable and can be used to charge HST or GST regardless of the timely report. The tax invoices are also issued to a customer who is GST registered.

The following make up a tax invoice:

  • The words —Tax Invoice.
  • Invoice date (invoice issue date)
  • Unique invoice number
  • Seller identity and business number
  • Tax Identification Number
  • Description of the items sold
  • Price of the specific items sold
  • The total amount with the inclusion of tax
  • Tax charged for each item
  • Payment-specific information and accepted payment methods

The invoices are sent at the end of a fiscal year to tax authorities.

Is Tax Invoice a Receipt?

Receipts and invoices are created by vendors or sellers and are issued to a buyer. Even though both documents may contain somewhat similar information, a tax invoice is not the same as a receipt.

An invoice is sent to the buyer or company before payment is made and is used to request payment. It contains prices, discounts, taxes, details of both the buyer & the seller, and the total amount payable.

A receipt is issued after payment. It is proof that the taxable sale has been finalized and payment has been made. It also serves as proof of ownership. The products and services rendered, are listed in the invoice with discounts, taxes, payment methods, prices, and the amount paid.

The main objective an invoice has is to request payment. On the other hand, a receipt is proof that certain products and services have been paid for.

Why Is a Tax Invoice Necessary?

 

Why Is a Tax Invoice Necessary?

Tax invoices are useful for different reasons other than accounting purposes. Below are the reasons why tax invoices are necessary:

  • To uphold a claim from the registered dealer of charging incurred tax on a purchase
  • To determine what supplies are to be included in a period
  • To find out the time when tax payment can be made from the invoice received
  • Date tax invoices play a crucial role by recognizing transactions in a state’s tax system
  • To register proof for input tax credit claim
  • Tax invoices help the government authority prevent tax evasion
  • To calculate taxes accurately of a financial year and help to claim tax relief

When small business owners use accounting software, tax calculations can easily be made, and the invoicing task will be made simpler.

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