Add a tax rate

Add your own tax rate if your organisation needs more options than Xero's default rates. Your tax rates can apply to sales, purchases, or both.

Add a new tax rate

  1. On the Settings menu, select General Settings.
  2. Under the Organisation heading, click Tax Rates.
  3. Click New Tax Rate.
  4. Enter a Tax Rate Display Name.
  5. Select the Tax Type.
  6. Add the Tax Components.
  7. Click Save.

Tax Rate Display Name

The name identifies the tax rate in the chart of accounts and on your transactions. It's only shown within Xero. It doesn't appear on your invoices, quotes, or other documents you send outside Xero.

Include the rate's percentage in the name to help identify it.

Tax rate display name

Tax Type

The tax type determines how the VAT portion of transactions using this rate is included on your VAT Return.

The tax types available are:

  • Sales
  • Purchases
  • Exempt Sales
  • Exempt Purchases
  • EC Sales Goods
  • EC Sales Services
  • EC Purchases
  • EC Acquisitions
  • Reverse Charges
  • MOSS Sales
The tax type 'EC Purchases' is no longer available for new tax rates, but tax rates you previously set up using this tax type can still be used. For new tax rates, use the tax type 'EC Acquisitions' instead.

Tax Components

A tax component is a percentage rate applied to an item when you use the tax rate. Tax rates for the UK will normally have only one component.

Image showing component in tax rate.

  • You can include up to 6 components in a tax rate.
  • Your customers and suppliers will only see the total rate on the invoice, purchase order, credit note or other transaction. They won't see the individual components making up the rate.
  • You can use the same component for both sales and purchases tax rates.
  • UK tax reporting doesn't require a breakdown beyond the overall tax rate. Even if you use multiple components, it is only the overall rate that is displayed on transactions and shown on your VAT Return in Xero.
  • If you have more than one component, any one of the components can be a compound rate. Including a compound rate means the 'effective tax rate' is higher than the nominal rate. The effective tax rate is used to calculate the tax on a line item.

    Image showing multiple components with compound component.

  • If you are entering transactions that use a different tax rate for each line, you will see each tax rate and amount listed separately before the transaction total.

    Image showing bill with different tax rates.

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