Adding a tax rate while submitting an expense ensures accurate total cost calculations.
You can select predefined tax rates, which helps businesses differentiate between net and gross amounts and track taxes for reporting.
Enabling the Tax Feature
The tax rate field is enabled by default for all organizations, but filling it in is optional.
When entering an expense, users can select a tax rate from a dropdown menu.
Good to Know: Setting Up Tax Rates
Tax rates are defined at the Subsidiary level under Settings > Invoicing > Tax Rates.
Admins can add and manage tax rates, including the rate name, subsidiary, and tax value (e.g., 0% for tax-exempt customers). These rates appear in the tax dropdown when submitting an expense.
📌 Note: Since tax rates are tied to specific subsidiaries, ensure the budget selected for the expense is linked to the correct subsidiary.
Expense Entry
The tax rate dropdown appears on the expense entry form and is editable once a service is selected.
When a tax rate is selected, the Amount field updates automatically to reflect the cost correctly. This applies to both billable and non-billable expenses.
📌 Important Considerations:
The tax rate dropdown is disabled until a service is selected since tax rates are linked to budgets and subsidiaries.
Changing the service clears the tax field, as different subsidiaries may have different tax rates.
Expenses added before the Tax on Expenses feature was released will not have a tax value.
The tax rate field is optional unless integrated with Xero, where it becomes required when copying the expense to Xero.
For QuickBooks Online integrations:
US QuickBooks accounts do not support tax on expenses, so only the gross amount without tax is sent.
Non-US QBO accounts may support expense tax, and selecting a tax rate will be required before syncing.
Total Cost Calculation
When a tax rate is selected, the total cost updates automatically using the following calculations:
Total Cost = Qty * Cost
Amount = Qty * Cost (excl. Tax) * (1 + Tax Rate)
Billable Amount = Total Cost + (1+ Markup Rate)
📌 Note: The Billable Amount is calculated as Total Cost + Markup, not Cost + Markup + Tax.
This is because tax on expenses represents the tax you paid on the expense. When invoicing, you'll typically charge the net amount and apply your own tax rate at that stage.
Purchase Orders
When adding an expense through a Purchase Order (PO) form, the tax rate dropdown is also available.
The tax rates from Settings > Invoicing > Tax Rates apply to PO expenses. The Totals section provides a breakdown of each expense’s tax amount.
The Purchase Order document template includes a "Tax" column and a subtotal calculation, along with the following columns: Description, Quantity, Price, Amount, Total Cost, Tax Rate, and Tax Total.
