How to create a Tax Invoice: A comprehensive guide 2024

What is a tax invoice?

A tax invoice is a legal document used as evidence that a vendor has sold goods or services and that VAT has been added to the transaction. The registered sellers issue this formal document to the buyers to claim input tax. The document comes in paper form and is used to keep financial records of daily transactions. If a company maintains well-organized tax invoices, it can streamline financial operations, enhancing its productivity.

In the paragraphs below, I will discuss various types of tax invoices, how it is used, and how to generate one. In addition, I will also discuss which information must be provided in tax invoices and the consequences of creating the wrong tax invoices.

How to create a tax invoice: A step-by-step guide

• The first step to creating a tax invoice, businesses must collect all the necessary information about the names and addresses of the clients. The VAT number of the suppliers is also required. Businesses use various accounting software to create invoices, saving them an enormous amount of time.
• In accounting software, you will find many tax invoice templates. You just put information and you are good to go. These templates are customizable so you can change them according to your needs.
• Determine the exact amount of tax payables using the VAT calculator. The calculator prevents you from committing any errors. 
• When all the information is placed on the invoice, minutely review the document before sending it to the recipient.

Types of tax invoices in South Africa

When the tax system was revamped in South Africa in 1991, two types of tax invoices were introduced in compliance with the Value-added Tax Act.

Full tax invoice

When the transaction exceeds ZAR 5000, the dealer must issue a full tax invoice. This invoice is issued considering the guidelines set by the South African Revenue Service (SARS). The crucial elements of the full tax invoice:

• The words such as “Tax Invoice” or “VAT Invoice” should be displayed on the paper.
• The legitimate business address, name, phone number, and VAT registration number of the dealer 
• Each invoice has a unique number. So, any kind of duplication or manipulation will be penalized. With the invoice number, the date of issue is also mentioned on the invoice.

Abridged tax invoice

Abridged tax invoice is issued when the taxable supplies do not exceed ZAR 5000. However, the transaction must be over ZAR 50 in this scenario. All the elements of the full tax invoice also apply to the abridged tax invoice.

Other tax invoices in South Africa

• Pro-forma tax invoice: The pro-forma tax invoice displays the breakdown of the estimated costs of goods or services including VAT.
• Electronic tax invoice: As digital payments have increased, the demand for electronic tax invoices has risen. Businesses are adopting this invoice due to its convenience and efficiency. 
• Recipient-created tax invoice: This invoice is issued by the purchaser instead of the seller. This is an agreement issued by the buyers within 28 days of the sale.

What information should be used in tax invoices?

Dealers must submit tax invoices to the South African government. So, it is essential to use authentic information in the tax invoices. The information used in a tax invoice is listed below:

• Write the business name, address, and phone number in clear fonts. 
• Write the VAT registration number and unique invoice number. Moreover, it is necessary to mention the date of issue.
• Write a clear description of goods or services and list the quantity of the products purchased.
• Tax on sales and purchases is calculated on the current South African VAT rate.
• The accurate information on delivery date, shipping, and billing address.

Importance of tax invoices

• Businesses operating in South Africa use tax invoices to store records of tax payables, discounts, and prices of products.
• These invoices are used to monitor the quantity of the products sold and manage inventory and cash flow.
• Input tax credit (ITC) is an essential component of the South African tax system. Purchasers need these invoices to claim input tax credit, an amount charged on the purchase of goods or services.
• If any discrepancies occur at the time of payments, these invoices can resolve those disputes. In addition, invoices are used to provide transparency in financial dealings to avoid misunderstandings and legal issues.
• If a business provides invoices, it helps build trust with the customers.

Wrapping Up

Tax invoices are vital for South African businesses to track and monitor records of transactions. Keeping invoices regularly helps them maintain transparency and accuracy. You need an e-signature to issue a tax invoice. Your work will be much easier if you use e-signature software.