---
title: "Taxes"
url: https://flexie.io/resources/finance/taxes
description: "Define each tax rate once, attach it to the products it applies to, and Flexie does the maths everywhere, quotes, invoices, accounting."
---

# Taxes

Last updated 26 May 2026

![A Flexie tax form, rate, type, class, and the chart-of-accounts mapping](https://flexie.io/image/resources/finance-taxes.png)

Define each tax rate once, attach it to the products it applies to, and Flexie does the maths everywhere: quotes, invoices, accounting.

## What a tax is

A **tax** is a named rate (with a rate type) plus a few labels that help you keep your books straight. You set it up once, then attach it to the products that should charge it.

Examples:

* **VAT 20%**, the standard UK VAT rate.
* **Sales Tax (CA) 7.25%**, California sales tax.
* **GST 5%**, Canadian goods and services tax.
* **Reverse-charge VAT**, a 0% rate used for B2B EU exports.

You can have as many taxes as you need.

## Creating a tax

Click **New** on the taxes list.

| Field           | What it does                                                                                                                            |
| --------------- | --------------------------------------------------------------------------------------------------------------------------------------- |
| **Name**        | Display name, what appears on quotes and invoices (e.g. _"VAT 20%"_).                                                                   |
| **Rate type**   | _Percentage_ (typical, e.g. 20%) or _Fixed_ (a flat amount per line, e.g. an environmental levy of £5).                                 |
| **Rate**        | The actual rate, 20 for 20%, or the flat amount for a fixed-rate tax.                                                                   |
| **Tax type**    | _Sales_ (a tax you charge customers) or _Purchase_ (a tax you pay suppliers). The two are kept separate in your books.                  |
| **Tax class**   | _Domestic_, _Export_, or _EU_. Used to keep cross-border taxes separate for reporting. Pick _Domestic_ if you only sell in one country. |
| **Tax code**    | A short identifier, useful for tax-authority reporting or matching against codes your bookkeeper uses.                                  |
| **Description** | Optional, internal notes.                                                                                                               |

### Where the money goes

| Field                    | What it does                                                                                                                   |
| ------------------------ | ------------------------------------------------------------------------------------------------------------------------------ |
| **Sales tax account**    | The account in your [chart of accounts](https://flexie.io/resources/finance/accounting) where this tax's _output_ (sales tax owed) is recorded. |
| **Purchase tax account** | (For purchase taxes) Where _input_ tax (claimable) is recorded.                                                                |

If you leave these blank, Flexie uses your default tax accounts. Most accounts set these once during initial configuration.

## Tax-inclusive vs. tax-exclusive pricing

This isn't set on the tax itself, it's set on the **product** (see [Products → Tax](https://flexie.io/resources/finance/products#tax)). The same tax (e.g. _VAT 20%_) can be used by inclusive-priced products _and_ exclusive-priced products at the same time.

| Pricing style     | What you type as the product price | What appears on the line             |
| ----------------- | ---------------------------------- | ------------------------------------ |
| **Tax-exclusive** | The pre-tax price (£100)           | Subtotal £100 + tax £20 = total £120 |
| **Tax-inclusive** | The all-in price (£120)            | Subtotal £100 + tax £20 = total £120 |

Either way, the tax total is the same. The difference is just which number you wrote down as the _Price_.

## How a tax flows through

When a line item uses a product with a sales tax:

1. **On the quote / invoice line**: Flexie computes the tax amount for that line (based on the line subtotal and the tax rate, with inclusive / exclusive handling).
2. **In the totals block**: taxes are summed and shown as a line, _Subtotal £500.00 / Tax £100.00 / Total £600.00_.
3. **On invoice finalisation**: Flexie posts a journal entry that credits your **Sales tax account** for the tax amount (so you know what you owe the tax authority).
4. **When you pay the tax authority**: you record that as a payment against the Sales tax account, which clears the liability.

The first three steps happen automatically. Only the fourth needs manual recording, since paying the tax authority is a real-world event Flexie can't see.

## Common patterns

### One country, one tax

Most small businesses have a single sales tax (e.g. VAT 20%, GST 5%). Configure that one tax, set it as the default on every product, and you're done.

### Multiple rates in one country

Sales tax can differ by product type, e.g. food at 0%, books at 5%, everything else at 20%. Configure each rate as a separate tax, and attach the right one to each product (or each product _category_).

### Tax-exempt customers

Some customers (e.g. registered charities, B2B with valid EU VAT numbers) are tax-exempt. Two approaches:

* **Override per line on the invoice.** Add the line with no tax, this works for one-off cases.
* **Mark the customer as tax-exempt.** When customer-level tax-exemption is configured, lines for that customer get the tax removed automatically. Ask your administrator if you need this set up.

### Cross-border sales

If you sell to several countries:

* Use the **Tax class** field to keep _Domestic_, _Export_, and _EU_ taxes separate.
* Define separate taxes per region you sell into.
* Map each tax to its own account in the chart of accounts so your books reflect each jurisdiction cleanly.

## Compound taxes (tax on tax)

A few jurisdictions have taxes that apply on top of other taxes (e.g. a provincial tax that's calculated on the price _plus_ federal tax). Flexie supports this: when defining a tax, you can mark another tax as its parent, and the rate will compound.

This is a niche case; most teams don't need it. Don't enable it unless your bookkeeper has explicitly told you the local tax works this way.

## Gotchas

* **Once a tax is on a line, it stays on the line.** Editing the tax's rate later doesn't change quotes or invoices that already exist, they keep the rate that was applied at the time. If a rate change is retroactive (rare), you'd need to revise the affected documents.
* **Tax-exclusive is the safer default.** If you're not sure whether your customers expect tax-inclusive or tax-exclusive prices, go with exclusive, it's clearer where the tax is and reduces "wait, why did the total change?" questions.
* **Fixed-amount taxes don't scale.** A fixed £5 environmental levy gets applied as £5, regardless of the line subtotal. If you want it to scale with quantity, the line's quantity does it automatically, `2 × line with £5 levy = £10 levy`.
* **Sales vs. purchase taxes can't be mixed.** A sales tax can't appear on a purchase line and vice-versa. They land in different accounts and report differently.

## Next

* [Quotes](https://flexie.io/resources/finance/quotes): where taxes first show up on a customer-facing document.
* [Invoices](https://flexie.io/resources/finance/invoices): where taxes become real money owed.
* [Accounting](https://flexie.io/resources/finance/accounting): where the tax amounts land in your books.