Set up sales tax in Xero

Set up and manage your sales tax in Xero. Xero applies default rates to accounts in your chart of accounts. You can edit them and apply them to different accounts, and you can create your own rates.

The Xero default rates are set to 0%:

  • Tax Exempt (0%)
  • Tax on Purchases (0%)
  • Tax on Sales (0%)
  • Sales Tax on Imports (0%)

If your organisation is based in Singapore or South Africa, Xero provides tax rates relevant to you. Using them brings through the correct codes to your IAF audit file (Singapore) or VAT files (South Africa).

Export an IAF audit file (Singapore)

Full help for adding and editing tax rates is available in our Help Centre.

To help you get started, here are some instructions for example tax systems

Find your tax rates from the menu Settings > General Settings > Tax Rates.

There’s a single tax rate for sales and purchases I make within my country

  1. Identify the tax rate you need to pay and collect e.g. 10%.
  2. Update the default ‘Tax on Sales’ and ‘Tax on Purchases’ tax rates and enter your tax rate of 10%.

There’s a single tax rate for sales and purchases, but there are additional reporting requirements

  1. Identify what reporting requirements are applicable by looking at your last one or two sales tax returns. For example, your tax may be 10% on all sales and purchases, but you are required to report all sales to the government separately.
  2. Update the default ‘Tax on Sales’ and ‘Tax on Purchases’ tax rates and enter your tax rate of 10%
  3. Add a new tax rate called ‘Tax on Govt sales’ with a single component ‘Sales tax’ at 10%.

There are different tax rates based on the type of goods and services I am buying and selling

  1. Identify what taxes you need to collect or pay by looking at the sales and purchases you have made recently. For example, you may sell food and charge 10% on cooked food and 5% tax on uncooked food, while all of your purchases are at 5%.
  2. Update the default ‘Tax on Purchases’ and enter your tax rate of 5%.
  3. Add a new sales tax rate called ‘Tax on cooked food’ with a single component of ‘Sales tax’ at 10%.
  4. Add a new sales tax rate called ‘Tax on uncooked food’ with a single component of ‘Sales tax’ at 5%.

There are different tax rates based on the location of my customers

  1. Identify what taxes you need to collect by looking at the tax you are currently applying to your invoices. For example, you may sell to customers in your city (Myville) at 9%, customers in your state (Mystate) at 8.25% and customers out of your state at 7.25% while all of your purchases are at either 9% or exempt.
  2. Update the default ‘Tax on Purchases’ and enter your tax rate of 9%.
  3. Add a new sales tax rate called ‘Myville sales tax’ with two components, ‘City tax’ at 0.75% and ‘State tax’ at 8.25%.
  4. Add a new sales tax rate called ‘Mystate sales tax’ with a single component of ‘State tax’ at 8.25%.
  5. Add a new sales tax rate called ‘Out of state sales tax’ with a single component of ‘Out of state tax’ at 7.25%.

How do I account for Canadian PST, RST or QST in Xero?

Account for sales tax in Xero for Canadian organisations