Invoices are important in today’s business activities. They act as evidence of transactions made and can be a reference point for past activities. There are two main types of invoices; tax and standard or retail. It is easy to get confused about what makes an invoice a tax invoice. After all, they look alike, they include similar information, and they are both considered legal documents.

Tax invoice is that invoice which is issued from a registered business vendor to another during the sale of goods or service provision. Note that here the purchaser is not the end user of the commodities purchased. Meanwhile, invoice is the document issued from a business vendor to the end consumer during a sale. Tax invoices are important as they avail tax credits. Standard invoices are important as they request customers to make payments on services provided or goods that have been delivered to them.

Companies send invoices to customers to let them know how much they need to pay. A tax invoice is no different, but it also serves an additional purpose: to help buyers, sellers, and tax authorities understand and process the tax due on specific sales. As such, the primary difference between a standard invoice and a tax invoice is that tax invoices include information about Goods & Services Tax (GST), whereas regular invoices don’t.

Whether you send invoices or tax invoices, it is imperative you keep a full, complete record of your sales documents. Note that both types of invoices are used for annual accounts and financial reports, while tax invoices are also needed to claim tax credits. It is therefore essential that you meet record-keeping guidelines and requirements, whichever type of invoice you send.

What is a Standard Invoice?

An invoice is a document primarily used to record a transaction. The document provides the record of the sold item and the amount of money involved. An invoice is also known as a bill. Have it in mind that this document is used before any payments of the goods or services are made. The information is useful to both the seller and buyer. The seller makes use of the records to follow up with the buyers for billing. Invoices are useful to keep records of the total amount owed to you by customers.

Also note that the invoice is useful to the buyer as it can be used for bookkeeping purposes and for seller accountability especially when the goods or services don’t match the expectations and refunds are required. Remember that this commercial tool is created in duplicate, the original copy is left with the seller and a copy is issued to the buyer. A regular invoice has the following details:

  • Date of invoice issue
  • An invoice number
  • Details of the buyer
  • Details of the seller
  • Quantity
  • Price per quantity
  • Total price
  • Discounts
  • Signature of the selling agent

What is a Tax Invoice?

A tax invoice is an invoice sent by the registered dealer to the purchaser showing the amount of tax payable. It tends to include the description, quantity, value of goods and services and the tax charged. If you make a taxable sale, your tax-registered customers need an invoice from you to claim their tax credits for purchases. It is issued when the goods are sold with the objective of resale.

Businesses need to charge various taxes (HST, GST and VAT) from their customers on the products and services and report it to the government. A tax invoice is provided by one registered vendor to another to get input tax credit. It is more or less a summary invoice that can be used for GST/HST whether you report monthly, quarterly, or annually. A tax invoice must be issued when your customer is GST registered. A tax invoice may include the following details:

  • Contains the words “Tax Invoice”
  • Name, address and contact details of the seller
  • Invoice Number
  • Date of issue of the invoice.
  • Name and Address of the buyer
  • Tax Identification Number
  • The quantity of goods/services
  • The price per unit
  • Total amount including taxes
  • Tax charged for each item
  • Payment details

Difference between Invoice and Tax Invoice

  1. Definition

Just like it was explained above, a tax invoice is a document legally recognized by a government authority and is issued by the authorized dealer to a purchaser. It shows the tax amount payable for the exchange of goods or services. While an invoice is a document issued from a buyer to a seller indicating the amount due for the goods or services exchanged.

  1. Contents

Have it in mind that both documents have similar contents; however there are a few differences. The tax invoice contains an additional clause indicating the tax or GST amount payable. The invoice does not have any tax indication.

  1. Preparation

Note that tax invoice is prepared in triplicate. You will need one copy for the buyer, one for the seller and the other for the relevant government authority. The regular invoice is issued in duplicate one for the buyer and the other is left with the seller.

  1. Receiver

A tax invoice is more or less issued to another business or company for goods that will be resold or used in a manufacturing process. While an invoice is often issued to the end consumer!

  1. Objective

The primary objective of a tax invoice is to request payment for goods or services rendered. The key objective of the tax invoice is to avail tax credit or tax relief.

  1. Conditions

Note that when issuing the tax invoice, both the giver and recipient must be registered and authorized dealers. Regular invoices only require the seller to be a registered business or company.

Conclusion

The difference between invoice and tax invoice can be understood by merely looking at whether there is a GST component or not. Invoices provided by registered vendors are tax invoices while invoices provided by unregistered vendors are general invoices.

But irrespective of application of GST, invoicing is an important activity that serves as a documented proof of transactions conducted. Businesses should have an effective invoicing system that allows tracking back if there is any discrepancy with the goods sold.

Ajaero Tony Martins