How To Change VAT in Xero

How To Change VAT in Xero

Overview

In Xero, you cannot directly change the percentage of an existing VAT rate if it has already been used in transactions. Instead, you should create a new VAT rate and then apply it to new transactions or update defaults.

Step-by-Step Guide

Step 1. Add New Tax Rate

  1. Login to your Xero.
  2. Navigate to the Accounting menu, then select Accounting settings.
    1. Alternatively, navigate to Advanced > Tax rates in some versions.
  3. Click Tax rates.
  4. Click the New Tax Rate / Add New Tax rate button.
  5. Enter a Display Name for the new rate (e.g., "VAT 15.5%").
  6. Add the Tax Components and enter the new percentage.
  7. Click Save. 
Info
If you need a new rate (e.g., a temporary reduced rate), you must create it as a new option in Xero.
Once the new rate is created, you may want to set it as the default for specific items, contacts, or accounts so it's automatically applied to future transactions. 
  1. For the Chart of Accounts:
    1. Go to the Chart of Accounts and update the default tax rate for relevant accounts.
  2. For Contacts:
    1. Edit individual supplier or customer contacts to set a new default tax rate for their transactions.
  3. For Products & Services:
    1. If you use inventory items, update the default sales or purchase tax rates on these items.
  4. For Bank Rules:
    1. If you have bank rules that automatically reconcile transactions, you will need to manually amend them to use the new tax rate.
  5. For Repeating Invoices:
    1. Manually amend any draft or repeating invoices/bills that will be generated after the rate change comes into effect. 

Step 3. Change VAT on Existing Transactions.

  1. For Unpaid Transactions:
    1. Edit the transaction, ensuring "Amounts are" is set to Tax Exclusive (if needed), and then select the new VAT rate from the line item dropdown.

Important Considerations

If you are unsure about the tax implications, it is recommended to speak with your accountant or bookkeeper.

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