Make sales tax adjustments on paid transactions

If a paid invoice, bill or credit note has had sales tax incorrectly accounted for, there are 4 ways to resolve this.

Delete the payment, edit the transaction, then reapply the payment

Remove the payment, void and copy the original transaction, then re-enter it correctly

Create a manual journal adjustment

Use Find & Recode (Advisors only)

Changing the tax rate on a paid invoice, bill or credit note can have tax implications for you and your customer or supplier. Consult with your accountant or bookkeeper to make sure you use the right method for your organization.

Delete the payment, edit the transaction, then reapply the payment

You might use this method if you want to keep using the same invoice, bill or credit note number.

  1. Remove the payment transaction using Remove & Redo.

  2. Edit the sales tax.

  3. Reapply the payment.

    Make a payment (invoices)

    Make a payment (bills)

    Make a cash refund (credit notes)

  4. For invoices and sales credit notes, you may need to reissue the invoice or credit note to your customer.

Remove the payment, void and copy the original transaction, then re-enter it correctly

You might use this method if you want to cancel the original transaction and create a new invoice, bill or credit note.

  1. Remove the payment transaction using Remove & Redo.

  2. Void the transaction.

    Delete or void invoices, bills or credit notes

  3. Create a copy.

    Copy an invoice

    Copy a bill

    Copy a credit note

  4. Complete your new invoice, bill or credit note. You can edit any of the fields.

Create a manual journal adjustment

Sometimes editing all the transactions in an account is not realistic and you need to create a manual journal to make an adjustment. (Note the ability to add manual journals depends on your user role.)

Manual journals

If you are unsure if you need to make a journal adjustment, you should consult your accountant or bookkeeper. You can invite them to view your accounts by adding them as a user. Be sure to give them the Advisor user role.
Add new users to your organization

Worked example

A cleaning contractor provides cleaning services to your business. She issues bills totaling 5,000.00 (including 423.34 sales tax). You later find out, after entering and reconciling all the payable invoices in Xero, that sales tax is not applicable to these services.

Post a correcting journal:

  • The original transactions total 5000.00 (4576.66 coded to Cleaning and 423.34 coded to sales tax).
  • You need to reduce sales tax by 423.34 and increase Cleaning by the same amount.

Image showing sales tax adjustment journal.

  • The first line of the journal reverses the invoices and their incorrect sales tax treatment.
  • The second line of the journal correctly reflects the transactions with no sales tax applied.

Use Find & Recode (Advisors only)

If you're an Advisor, you can edit transactions using Find & Recode.

Find & Recode


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