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 tax rate you selected. 

 

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. 

 

By following these steps, you’ll efficiently handle and track sales tax in Xero for accurate financial reporting.