What is the effect of changing the invoice from tax exclusive to tax inclusive in Xero?

When changing an invoice from tax exclusive to tax inclusive in Xero, the primary effect is that the total amount of the invoice adjusts to account for tax being included in the final figure. This means that the gross total reflects not only the base amount for the services or products but also the applicable tax.

In the case of tax inclusive settings, the invoice total represents the total a customer pays, which consists of both the value of the goods or services provided and the tax amount. Therefore, the system recalculates and shows how much of the total amount pertains to the tax itself rather than just the itemized totals.

When setting the invoice to tax inclusive, the system mathematically divides the total amount to determine the net amount before tax and also calculates the tax component based on the set tax rate. This enables the invoice to clearly indicate both the total amount due and the tax portion that makes up that total. Thus, the result is that the tax amount is effectively included in the invoice total, rather than being an additional charge on top of the subtotal.

In summary, the change impacts how the invoice displays tax information, with the total reflecting the sum of the tax inclusive amount, thereby providing a clear breakdown of what the customer owes.