Sales tax is imposed on the price of some items and services, and is charged as a percentage of the selling price and is collected at the time of the sale. The amount of sales tax to charge depends on the State, City, and Country your business may operate in, and multiple or different taxes can be charged at the same time.
The business charges sales tax on the government’s behalf, which means sales tax is not a part of your business’ income. Sales tax must be paid back to the government (also known as tax remittance) at specific intervals depending on your government’s requirements.
Create a Sales Tax
- Sales Tax can be added to bills, credit notes, expenses, invoices, other income and vendors
- Once a unique sales tax is created, this Sales Tax account is automatically added under your Taxes Payable account in your Chart of Accounts
- If using Making Tax Digital (MTD), your sales tax must be named VAT for it to appear correctly in the VAT Return report
To create or add a sales tax to your bill, credit note, expense, invoice, other income entry or vendor, use the below steps:
- While you’re creating or editing on the:
- Bill, credit note or invoice, select the Add Taxes link
![Example of tax fields to fill out for credit note or invoice.]()
- Expense, select the Tax Amount box (or Add Taxes link if in advanced settings)
![Example of tax fields to fill out for expense.]()
- Other income entry, select the Tax field
![Example of tax fields to fill out for other income entry.]()
- Vendor profile, select the Sales Tax Type, then select the Add Sales Tax field
![Example of tax fields to fill out for vendor profile.]()
- Bill, credit note or invoice, select the Add Taxes link
- To create a new sales tax:
- Select inside the Rate field and enter the percentage of the sales tax up to three decimal places (0.000)
- Then select inside the Tax Name field and enter a Tax Name
- If needed, select inside the Tax Number / ID field and enter the sales tax number
- To select an existing sales tax, check off up to two boxes
- Select Apply Taxes to save the changes. The new or updated sales tax will save even if the invoice, expense, etc isn't saved.
Manage your Sales Taxes
To edit or remove a sales tax, use the following steps:
- Edit the bill, credit note, expense, invoice, other income entry or vendor
- Select the Tax Amount field, Add Taxes link or the Tax field
- Uncheck the box(es) and select Apply Taxes to save your changes.
If you’d like to have your sales tax permanently deleted, please reach out to our support team.
Review your Sales Taxes
Use the Sales Tax Summary report to easily find the amount of sales taxes you’ve collected from your invoices and expenses (the Profit and Loss report does not include sales taxes).
Review with Accounting Reports
If using Accounting, sales taxes can be reviewed further with a variety of these reports:
- Review the Chart of Accounts:
- Taxes Payable Parent Account - Reflects all sales taxes collected on credit notes, invoices and other income
- Taxes Paid Account - Reflects all sales taxes paid on expenses
- Taxes Paid will not deduct automatically against the Taxes Payable amounts - your accountant can record this via journal entries instead
- The General Ledger report can be used to view all specific transactions affecting Taxes Paid and Taxes Payable accounts
FAQs
How can I record income tax in my FreshBooks account?
While sales tax is charged based on your goods or services, income tax is the amount a business pays on their total income earned to the appropriate tax authorities. To determine what your income tax obligations are, you should talk to your accountant or financial advisor.
FreshBooks currently only tracks sales taxes. Other tax types, such as income tax, can be tracked by your accountant using journal entries inside your Chart of Accounts. You can review any journal entries in your General Ledger report.
I’ve submitted sales tax remittance (paid my taxes back) to my tax collection agency/government. Where can I record this correctly?
Tax remittance can be tracked in your account by having your accountant record this as a journal entry to reduce your Taxes Payable account inside your Chart of Accounts.
- If you are using bank reconciliation and this tax remittance was imported in by your bank, mark the remittance as a Bank Transfer and leave notes indicating it’s a tax remittance payment; the corresponding expense under FreshBooks Entries will be deleted automatically
- Otherwise, if your tax remittance is recorded in FreshBooks as an expense, the expense can be deleted
If you need to record a sales tax refund, this can be done by reviewing How are common transactions recorded as journal entries? here to find out which accounts your accountant can write the journal entry to.