There is an “invoice system” in the keyword that is attracting attention among freelancers. It’s a keyword that has been attracting attention for several years, and it’s getting even more attention lately.
If freelancers don’t know about it, they may lose out, but there are still some people who don’t understand it correctly. This time, we will explain the basic knowledge that you should understand when the invoice system is introduced.
Explaining the invoice system again
Since the invoice system has been explained repeatedly for a long time, many people probably understand the contents. However, at the same time, some people do not understand the meaning of the explanation, so I will explain the invoice system again.
Overview of the invoice system
The invoice system is a system reform related to the consumption tax that will be introduced from October 1, 2023, along with the consumption tax increase. Even now, there is a system called “purchase tax deduction”, and the invoice system is positioned as a revision of this.
The official name of the system is called the “eligible invoice storage method”, and it is a system that guarantees the issuance of “eligible invoices” that meet the following conditions.
- Name and registration number of qualified billing business
- transaction date
- Transaction contents
- Amount of consideration divided by transaction content tax rate and totaled
- Consumption tax amount classified by the tax rate
- Name of the business operator who receives the issuance of documents
There are many cases where the purpose of the invoice system is not understood, but the invoice system is set up to properly pay the consumption tax. Many freelancers do not pay consumption tax due to sales reasons, so understand the purpose of the invoice system and the impact of consumption tax on yourself.
What is the purchase tax credit that is closely related to the invoice system?
A keyword closely related to the invoice system is the “purchase tax credit system. ” This is a keyword that is unfamiliar to those who are freelance and eligible for consumption tax exemption, so let’s deepen our understanding of this as well.
The purchase tax credit is a system that allows you to deduct the consumption tax included in the payment required for purchase from the consumption tax imposed on taxable sales. If you pay consumption tax directly on sales, you will end up paying too much because you are also paying consumption tax to your suppliers. This allows you to deduct the amount you have already paid.
Once the invoice system is introduced and the consumption tax can be calculated properly, it will be possible to accurately calculate the purchase tax credit. It is sometimes collectively expressed as “the invoice system is for calculating consumption tax”, but in reality, it is for accurately calculating the purchase tax credit.
What is an “invoice”?
I would like to explain again the important keyword in the invoice system, “invoice”.
Invoices are officially called “eligible invoices” and, as the name suggests, are appropriate invoices that follow certain rules. To calculate the purchase tax credit, it is necessary to accurately grasp the consumption tax, and the rules for grasping the situation were established as an invoice system.
To accurately calculate the amount of tax due, several pieces of information are required and the invoice must include the following information:
*Reposted
- Name and registration number of qualified billing business
- transaction date
- Transaction contents
- Amount of consideration divided by transaction content tax rate and totaled
- Consumption tax amount is classified by the tax rate
- Name of the business operator who receives the issuance of documents
In addition to simply describing the amount of consumption tax, it is required to indicate that the invoice was issued by a business that can issue it. Specifically, you must enter what is called a “registration number”. If the freelancer is to issue invoices from now on, it is necessary to obtain this registration number.
If you are currently issuing invoices, likely, you generally meet the criteria for invoices. By adding a “registration number” to the current invoice, you can respond to the invoice system.
Different from import/export invoice
The term “invoice” is also used in import and export situations such as trade. Please note that this is very different from the invoice used in the invoice system.
Invoices used in imports and exports indicate what kind of goods are exchanged. It is generally called an “invoice” and is not related to consumption tax. Freelancers who do personal imports may create an invoice, but be careful as it is different from the invoice system.
In addition, since the invoice used for import and export is also a tax-related concept, it is not strange to misunderstand it as an invoice system. If you are importing or exporting anything, it is important to check just in case.
Two things freelancers should do to introduce the invoice system
There are two things that freelancers should do toward the introduction of the invoice system. I will explain each task.
Become a taxable business operator of consumption tax
To respond to the invoice system, it is necessary to become a taxable business operator of consumption tax. Since the invoice system is a system for paying the consumption tax correctly, you are required to pay the consumption tax yourself. You cannot issue an invoice unless you become a taxable business entity for consumption tax.
There are two points to determine whether or not you become a taxable business operator of consumption tax.
First of all, if you are a freelancer with sales exceeding 10 million yen, you are already subject to consumption tax. Since you should have declared consumption tax at the time of the final tax return, there will be no big change even if the invoice system is introduced. There is no problem if you only follow the procedure for issuing the invoice, which will be explained below.
Conversely, if you are a freelancer with sales of 10 million yen or less, you need to intentionally become a taxable business entity for consumption tax. Submit a document called a “taxable business selection notification form” to the tax office with jurisdiction to complete the preparations for paying the consumption tax. By submitting this, you will be obliged to pay the consumption tax, so the work such as the final tax return will increase.
To issue an invoice, it is a prerequisite to be a taxable business operator of consumption tax. This will have a major impact on freelancers who were exempt from consumption tax for sales of 10 million yen or less. Many freelancers pay more tax due to the invoice system.
Register as an Eligible Billing Business
Consumption tax-taxable businesses can register as eligible invoice issuers. Here too, all you have to do is submit a document called “Application for Registration of Qualified Invoicing Business” to the tax office with jurisdiction. There is nothing difficult to fill in, so get the format from the National Tax Agency website and submit it.
By submitting this document, a “registration number” necessary for issuing an invoice will be issued. By writing this registration number on the invoice, the correspondence to the invoice system is completed. The only procedure is to submit the documents, but do not forget to write the issued number.
Change to an invoice format that supports invoices
To include the registration number issued above, it is necessary to change the invoice format to one that corresponds to the invoice when creating the invoice. Since it is thought that there is no column to enter the number in the invoice you are using at the moment, let’s change the format so that “it is a registration number” and “registration number” can be understood respectively.
You need to change the format yourself, but if you are using an invoice-issuing service such as the cloud, it may be possible to issue invoices compatible with the invoice system. A major billing service has expressed support for the invoice system, and it seems that it will be displayed on the bill when the issued number is registered. Freelancers using such services are not considered a big hassle.
What freelancers should consider when introducing an invoice systemI explained how to respond to the introduction of the invoice system, but freelancers need to consider how to respond based on their situation.
Does it correspond to the invoice system?
I explained about the invoice system, but it is not essential to support the invoice system. Since the issuance of invoices will be required from now on, many freelancers are expected to comply with the invoice system, but there are no penalties for not complying.
To comply with the invoice system, it is necessary to become a taxable business operator, which increases the tax burden. Therefore, there is an option not to become a taxable business operator considering the tax burden. It will not be possible to issue invoices, but such a decision is not bad.
However, if the invoice cannot be issued, there is a possibility that the transaction with the client will be affected. This is because the client cannot receive the purchase tax credit without the invoice. This is a big disadvantage for clients.
However, this only applies if the client is also a taxable person. If the transaction as a freelancer is small and neither party is taxable, there is no problem even if the invoice cannot be issued. Depending on the person, it may even be advantageous not to respond to the invoice system.
Also, depending on the nature of the work, some people may not issue invoices. If you issue invoices infrequently, you may not need to be a taxable person. If you think that you have to comply with the invoice system, you may end up paying consumption tax in vain.
Consider incorporation
Taking advantage of the introduction of the invoice system, it is not a bad idea to consider incorporation. Depending on the sales amount and income amount, it may be possible to reduce taxes by incorporating rather than responding to the invoice system. There are various conditions, so I can’t say it unconditionally, but you can consider it as an option.
In addition, there are merits such as increasing social credibility by becoming a corporation. You may be able to feel the difference from freelancing in terms of making it easier to receive orders.
However, a corporation requires a large amount of money to establish and maintain. There is a possibility that you will regret it if you incorporate the invoice system, that is, only from the tax point of view. Please compare the income and expenditure forecast as a freelancer and the income and expenditure forecast as a corporation, and consider whether it is the method you should take.
Summary
I explained the invoice system, which is closely related to freelance. Freelancers are likely to issue invoices in the future and should start preparing now. For freelancers to issue invoices, pre-registration is required, so let’s complete this procedure first.
incorporation
it is possible to work as a freelancer without having to comply with the invoice system. However, if the invoice cannot be issued, the trading partner will not be able to apply the purchase tax deduction and will suffer a loss. Therefore, realistically, if you do not respond to the invoice system, you will not be able to continue your current work.
If you become a taxpayer of consumption tax, the tax amount will increase significantly. Since there is a high possibility that there will be a large difference in the amount you take home, it is also necessary to take measures such as saving systematically from now on.
