A tax invoice is a formal document issued by a seller to a buyer that provides detailed information about the sale of goods or services and includes specific details regarding the tax applied. It serves as a record of the transaction and is important for tax purposes, especially in business-to-business (B2B) transactions.

Below, we’ll cover why you need a tax invoice, what information is required in it, and how to format it for different jurisdictions.

What’s in this article?

• Why do you need a tax invoice?
  
• What information is required on a tax invoice?
  
• How to format a tax invoice for different jurisdictions
  
• How to differentiate between a tax invoice and a regular invoice
  

Why do you need a tax invoice?

A tax invoice provides a detailed record of a transaction that shows what was bought, when, and from whom. This can be used for several purposes:

• Tax deductions: Businesses and individuals often need a tax invoice to claim deductions on taxable income.

• Recordkeeping: Tax invoices help maintain accurate records for financial tracking, budgeting, and compliance with tax regulations.

• Audits and compliance: During audits, tax authorities usually require tax invoices to verify business expenses and ensure the correct amount of tax was paid or claimed as a credit.

What information is required on a tax invoice?

A tax invoice typically needs to include the seller’s information, buyer’s information, a date of issue, a description of goods, and a detailed breakdown of what was paid. Here’s a closer look:

• Seller’s information: Business name, address, and contact details, along with the business’s tax identification number (TIN), depending on the country. For example, the TIN might be a value-added tax (VAT) number in the European Union or a Goods and Services Tax Identification Number (GSTIN) in India.

• Buyer’s information: The buyer’s name or business name, address, and TIN in some cases, such as if the invoice amount exceeds a specific threshold or if it’s a B2B transaction.

• Invoice number: A unique sequential number for tracking and reference.

• Date of issue: The date when the invoice is created.

• Description of goods or services: Detailed information about the goods or services sold, including quantities, prices per unit, and any applicable descriptions.

• Total amount before tax: The subtotal amount owed for the goods or services before tax is applied.

• Tax rate and amount: The tax rate applied—such as VAT, goods and services tax (GST), or sales tax—and the amount of tax charged on each item or the total, depending on the itemization structure.

• Total amount payable: The total amount owed.

• Payment terms and due date: Information on payment terms and the deadline for payment, if applicable.

• Signature (digital or physical): In some regions, a signature or digital certification is needed for validation.

How to format a tax invoice for different jurisdictions

Different countries have different formats and requirements for invoices. Here’s how to format an invoice for the United States, United Kingdom, Australia, and Canada.

US

Header: Include your company name, logo, address, and contact information at the top.

• Invoice title: Title the document as “Invoice.”

• Invoice number: Assign the invoice a unique invoice number.

• Date of issue: Include the date the invoice is issued.

• Customer information: List the buyer’s name, address, and relevant contact information.

• Description of goods or services: Provide a detailed list of products or services, including quantities and prices. If applicable, show the tax rate and total tax for each item.

• Total amount: Show the total amount payable, including tax.

• Payment terms: State your payment terms, such as “Due upon receipt” or “Net 30 days.”

UK

• Header: Include your business name, address, and VAT registration number.

• Invoice title: Title the document as “VAT Invoice.”

• Invoice number: Assign the invoice a unique invoice number.

• Date of issue: Include the date the invoice is issued.

• Customer information: Include the customer’s name and address.

• Description of goods or services: Provide a detailed list of products or services, including quantities, prices, and the applicable VAT rate.

• Total amount: Show the total amount payable, including VAT.

• Payment terms: State your payment terms and any relevant bank details.

Australia

• Header: Include your business name, address, and Australian Business Number (ABN).

• Invoice title: Title the document as “Tax Invoice.”

• Invoice number: Assign the invoice a unique invoice number.

• Date of issue: Include the date the invoice is issued.

• Customer information: Include the customer’s name, address, and ABN for sales of $1,000 (AUD) or more.

• Description of goods or services: Provide a detailed list of products or services, including quantities, prices, and the GST amount. For each item, show the amount excluding GST and the amount including GST.

• Total amount: Show the total amount payable, including GST.

• Payment terms: State your payment terms.

Canada

• Header: Include your business name, address, and GST or harmonized sales tax (HST) registration number.

• Invoice title: Title the document as “Tax Invoice.”

• Invoice number: Assign the invoice a unique invoice number.

• Date of issue: Include the date the invoice is issued.

• Customer information: Include the customer’s name and address.

• Description of goods or services: Provide a detailed list of products or services, including quantities, prices, the GST or HST rate, and total tax charged.

• Total amount: Show the total amount payable, including GST.

• Payment terms: State your payment terms.

How to differentiate between a tax invoice and a regular invoice

A tax invoice and a regular invoice differ mainly in the details required for tax purposes and how they’re used for accounting and compliance. Here’s how to tell them apart:

Tax component

A tax invoice shows the tax amount for each item or service separately and includes applicable tax rates such as VAT, GST, and sales tax. It allows buyers to claim tax credits on the tax paid, particularly in B2B transactions. A regular invoice might not include a separate tax breakdown and is often used when no tax credit is applicable.

Invoice title

A tax invoice is clearly labeled as a “Tax Invoice” to indicate its eligibility for tax credits. A regular invoice is simply labeled as an “Invoice” and lacks tax-related labeling.

TINs

A tax invoice includes the seller’s and the buyer’s TINs to meet tax regulations. A regular invoice typically won’t include these identification numbers.

Usage

A tax invoice is primarily used in B2B transactions when the buyer might claim tax credits on the tax charged. A regular invoice is commonly used in B2C transactions, where the buyer is not entitled to claim tax credits.

Required information

A tax invoice must include tax rates, a tax amount, and other compliance-specific information to meet a tax authority’s standards. A regular invoice typically contains a simpler breakdown that focuses on product or service details, the amount due, and payment terms without tax-specific fields.