Here’s how to do it: 

1. Set Up Tax Rates

Log in to Xero and go to the dashboard. 

Click on “Settings” in the top right corner. 

  • From the dropdown, select “Tax Rates”. 
  • Click “Add Tax Rate”, and enter the tax name, rate percentage, and any other required details. 
  • Save the new tax rate, and it will be available for use in future transactions. 

 

2. Apply Tax Rates When Invoicing

  • When creating an invoice, go to the “Invoices” section and click “New Invoice”. 
  • Enter the customer details and the items or services being sold. 
  • In the Tax Rate column, select the appropriate tax rate from the dropdown menu. 
  • Xero will automatically calculate the sales tax based on the selected rate and add it to the total invoice amount. 

 

3. Apply Tax Rates to Purchases

  • When recording expenses or bills, go to “Business” and select “Bills to Pay” or “Spend Money”. 
  • Enter the supplier details, the items purchased, and assign the relevant tax rate from the dropdown menu. 
  • Xero will automatically calculate the sales tax for each line item based on the selected tax rate. 

 

4. View and Report Sales Tax

  • Xero tracks all sales tax collected and paid for both sales and purchases. 
  • To view a detailed breakdown of your sales tax, go to the “Accounting” tab and select “Reports”. 
  • Run the “Sales Tax Report” to see your total tax collected, payable, or receivable for the selected period.