Creating Sales invoices including Agents – Performance Accountancy – MTD

In this video, we are looking at how to create sales invoices in Xero for your self-employed accounts. For these demonstrations, I am assuming that you only have self-employed income. If you also have property income, the setup can be slightly different, but we will cross that bridge separately.

To raise a sales invoice, you can go to the sales overview and then invoices, or you can use the plus button and choose to create a new invoice. We will start with a straightforward performance invoice.

Choose the customer contact, such as Leeds Lieder Festival. Enter the invoice date, for example, 1 February, and then enter the due date according to your payment terms. If your terms are 14 days, the invoice might be due on 15 February. The first invoice in the sequence may start at number one, although if you are already using invoice numbers elsewhere, you should continue the existing sequence.

You can also enter a reference. This might be a contract number or another reference that the customer has asked you to include. Then enter the description, such as recital fee, with a quantity of one and the fee amount. If you offer a discount, the full price would go in the price column and the discount percentage would go in the discount column. But as a general rule, we do not like giving discounts away unless there is a very good reason.

If you set up the customer defaults properly, Xero should automatically post the invoice to performance income. In this example, there is no VAT because the Xero setup is not VAT registered. Once the invoice looks right, you can preview it to check the logo, customer address, payment terms and contact information. If everything is correct, you can approve it. You do not need to email it from the demo system if you are only practising.

The next example is an invoice involving an agent. This is where things can become more complicated because the agent may deduct commission and possibly withholding tax before paying you. The invoice still needs to show the gross income first, because that is the full fee you earned before deductions.

Create a new invoice and choose the agent or management company as the contact, for example, Meridian Artists. Enter the invoice date and due date as usual. In the reference field, you can include the agent’s reference number, which makes it much easier to match your invoice back to the remittance advice or agent statement.

The first line should be the gross fee. For example, if the gross fee for a performance in Cologne is £2,000, that amount goes to performance income. Then add a separate line for agent commission. If the agent has deducted £300 plus VAT, and you are not VAT registered, the total deduction is £360. That line should be entered as a negative amount and coded to agent fees or direct expenses, depending on your chart of accounts setup.

If withholding tax has also been deducted, add another negative line for the withholding tax. This should be coded to the withholding tax account, not to an ordinary expense account. Withholding tax is different from agent commission because it may be used later when claiming foreign tax credit relief on the tax return.

The net invoice total should then agree to the amount you actually expect to receive in the bank. For example, a £2,000 gross fee less £360 agent commission and £300 withholding tax would leave £1,340 payable to you.

If foreign social security has also been deducted, that is treated differently. Social security deducted overseas cannot normally be reclaimed through the UK tax return in the same way as withholding income tax. If it has been deducted, it may need to be recorded separately, often to owner’s drawings, because it is not an allowable business expense. In this example, we are assuming that an A1 form was in place, so only withholding tax was deducted and no foreign social security was taken.

That is the basic method for raising invoices in Xero where agents are involved: show the gross fee, deduct agent commission separately, record withholding tax separately, and make sure the final amount matches what will appear in the bank.