Adjust the VAT amount on unpaid transactions

Adjust a transaction's tax amount when the amount needs to be higher or lower than that calculated automatically. You can adjust the VAT amount on new transactions, and existing transactions which do not have any payments or allocations applied.

Xero calculates VAT on a line by line basis and rounds to the nearest penny. This is in accordance with HMRC's VAT Guide Section 17.5.

What transactions can you make a tax adjustment on?

You can make a tax adjustment to these transactions:

  • Invoices and bills
  • Credit notes and prepayments
  • Spend and receive money transactions
  • Manual journals

Make a tax adjustment

  1. In your transaction, set Amounts are to Tax Exclusive.
  2. Click the Image of the plus icon. on the Tax Rate column to open up the Tax Amount column.

    Image showing the plus icon on the Tax Rate column.

    Opening up the Tax Amount column on one transaction shows the column on any subsequent Tax Exclusive transactions a user in your organisation creates.

  3. Enter your non-standard amount in the Tax Amount column. Xero adds a line above the transaction total to display the adjustment amount.

    Image showing tax adjustment amounts.

  4. Save the transaction.

Only the amount in the Tax Amount column displays on your PDF or online invoice or credit note. The amount you've adjusted VAT by won't be shown.

How are tax adjustments included in VAT reports?

On the VAT Return, all VAT totals include adjustments to tax you have made. They are not displayed separately.

In the VAT Audit Report, each adjusted VAT amount appears in a separate Adjusted section for the rate.

Tax showing on Audit Report with 'Adjusted' in tax rate name.

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