Basics of small business invoicing for beginners
Since the introduction of GST 15 years ago, businesses across Australia have been issuing and receiving tax invoices. Are your tax invoices compliant? Are you aware what the Australian Tax Office requirements are for invoicing? There are still many business sending and receiving invoices that are not compliant.
If you are not registered for GST, your invoice simply does not include a tax component and the document you provide is a regular invoice as opposed to tax invoice.
If you are registered for GST and the value of the purchase is more than $82.50 GST inclusive you must provide your customers with a tax invoice. Particularly upon request, you must provide it to them within 28 days.
And keep in mind, an invoice is an official record of a transaction, which means that if you get any details wrong when sending your invoice, there’s a very specific way to rectify the situation and not doing so may create legal headaches.
In order for you to claim the GST credits documents must be kept as proof such as receipts, invoices, cash register dockets, bank and credit card statements to support your claims. If you have sales over $1000 on your tax invoice you are also required to add your customer’s identity and their address or ABN.
What you need to know about creating invoices
Six things you need to have tax compliant invoicing
- Ensure the words ‘Tax Invoice’ are prominent
- Clearly display your full business name and address
- Your ABN (Australian Business Number) should be on the document
- The date of invoice should be displayed
- The description of the product purchased by your customer, quantity and of course the price
- Display the total and the GST amount. You have two options of how to display this
- Display the GST separately and then the total value of what is sold (including GST)
- Total price of sale (including GST) with the wording “Total price including GST”
Here is an example of a tax invoice from the ATO Website:
Another consideration when invoicing is the requirement for mixed supplies. This means an invoice has a combination of items with GST and other items that are GST Free or input taxed.
You must show which sales are taxable on your tax invoice – usually the tax code GST is applied to the items with GST on one line, and ‘FRE’ applied to the items that are GST-free.
Tax invoicing can be much easier to manage with the use of an accounting, POS, ERP or other system to help you produce your compliant document requirements for your customers.
Invoicing software will keep your business invoicing streamlined and compliant. Products such as MYOB AccountRight and MYOB Essentials makes for simple step process. You have the ability to create the form required with all of the steps noted above included quite easily. A computerised system equips you to manage your GST requirements so you can avoid penalties and fines.
An even easier way is MYOB’s smartphone App PayDirect. It allows you to invoice your customers on the go, email them the compliant tax invoice.
You have the ability to add some other features to your Tax Invoice to enable faster payment which also improves cash flow.
Here are three great tips for getting paid faster:
- Add details for easy payment options – EFT, BPay, EFTPOS, PayPal, MYOB PayDirect
- State your payment terms clearly on your invoice
- Email your invoices out, so that clients receive them more quickly. Very few businesses still mail invoices
What you need to know about changing your invoices
As mentioned at the start of this article, an invoice is an official document and that makes changing the details on one problematic.
The good news is, if you follow the below rules, you’ll steer clear of any trouble.
- If you’ve not yet sent the invoice – If you realise you’ve made an error but haven’t yet sent your invoice to the addressee, then there’s no problems with editing and fixing it.
- If you have sent the invoice – In this case, you’ve become aware of an error on your invoice after it’s been sent. If the error happens to be relating to the monetary amount on the invoice, then you are legally obliged to issue a credit note for the difference. You cannot simply re-issue an amended invoice. On the other hand, if you simply need to change another detail, such as the customer’s information or your own information, you can re-issue an updated invoice.
- If you’ve sent a pro-forma invoice – Pro-forma invoices aren’t ‘official’ invoices, instead they stand in place of an invoice when certain details of the sale are not yet known. As such, they can be edited and re-issued up until they are converted to an actual invoice.
So no more uncompliant invoices. You now have all the information required to ensure your customers have what they need to claim back their GST credits for all those purchases. They won’t get into trouble from the tax man as your tax invoice is compliant!
The information provided here is of a general nature for Australians and should not be your only source of information. Please consult an experienced and registered tax agent as each small business’s circumstance will vary.