Tax on your documents is worked out from a tax code on each line. Tax codes are grouped into tax zones, which represent the places you trade in. Set these up once and every order, invoice and bill taxes itself.
Where to find them: Tax Zones and Tax Codes under Setup → Orders in the main menu.
Tax zones
A zone is a tax jurisdiction — typically a country, or a region within one.
| Field | Notes |
|---|---|
| Code | Required, and unique across your account. |
| Name | How the zone is described on screen. |
| Country | The two-letter country code. Optional, but if given it must be exactly two characters. |
| Region | A subdivision, where a country taxes by state or province. |
| Default | Marks the zone you trade in most. |
| Active | Retire a zone without disturbing history. |
A zone that has tax codes cannot be deleted. The deletion is refused rather than cascading, because removing a zone would strand the codes beneath it and the documents that used them. Deactivate it instead.
Tax codes
| Field | Notes |
|---|---|
| Code | Required, and unique across your account. |
| Name | How it reads on screen and on documents. |
| Rate % | Required. May be zero — a zero-rated code is a legitimate code, not an absent one. |
| Zone | The zone the code belongs to. |
| Inclusive | Whether prices using this code already contain the tax. See below — this changes the arithmetic. |
| Zone Default | The code used for that zone when nothing more specific applies. |
| Active | Retire a code without disturbing documents that used it. |
Only one code can be the default for a zone. Marking a code as the zone default automatically clears the flag on whichever code held it before, so the two can never both claim it.
Inclusive and exclusive tax
The Inclusive flag decides whether tax is taken out of the price or added on top — the same rate produces different money depending on it.
| Setting | What happens |
|---|---|
| Exclusive | Tax is added to the line: the price is the net, and the tax goes on top. |
| Inclusive | Tax is extracted from the line: the price already contains it, and the tax portion is worked back out of the gross. |
At 15%, a line of 115.00 produces 17.25 of tax if the code is exclusive, and 15.00 if it is inclusive — because in the inclusive case the 115.00 was already tax-paid.
How a document’s tax is worked out
Tax is not simply summed line by line. Lines are grouped by tax code and rate, and the tax is calculated and rounded once per group. This avoids the classic penny drift you get from rounding every line and adding the results up.
Rounding is to the currency’s own decimal places, using banker’s rounding — exact halves go to the nearest even digit rather than always up, so rounding errors cancel out across many lines rather than accumulating in one direction.
Two consequences worth knowing:
- The Tax total and the Tax Breakdown are produced from the same calculation, so they cannot disagree with each other.
- Lines without a tax code are left out of the tax calculation entirely, as are the component lines shown beneath a kit — those are there to show what went out, and taxing them would double-count the kit.
Discounts are taxed on the net
Discounts reduce the taxable amount before tax is applied, so tax is charged on what the customer actually pays:
- A discount line reduces the taxable base of its own tax group.
- A document-level discount applies to product lines only, and is spread across the product tax groups in proportion to each group’s share of the product total. A discount on the goods does not reduce the tax on your freight charge.
Where a line’s tax code comes from
You can set the tax code on any line, but you rarely need to: it is defaulted for you when the line is created, from the product and the party you are trading with. Documents built from another document — a bill from a purchase order, for instance — carry the tax code across rather than working it out again, so what you agreed is what gets billed.
Sending tax to your accounting system
Your tax codes will not necessarily be named the same as those in Xero, MYOB or QuickBooks. Tax Code Mappings records the equivalent code for each integration, so exports and pushes carry the code the accounting system expects. See Accounting export.
Things to know
- A starter set of tax zones and codes is created with your account, so there is usually something sensible in place before you begin.
- Zero-rated is not the same as no code. A zero-rated line is taxed at 0% and appears in the breakdown; a line with no code is excluded from the calculation altogether.
- Changing a code’s rate does not restate old documents. Their tax was calculated and stored when they were raised.