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The fiscal and commercial sides of invoicing

The invoicing process is not limited only to sending and receiving invoices. While that is the most basic fiscal (and accounting) purpose, invoicing also has a commercial side. Both are important aspects to understand about the process in order to stay on top of your business.

Since we don’t want this post to turn into ‘Invoicing 101’ we’ll use a short example to illustrate the differences:

A Debitoor user recently got in touch with us because they wished to use different VAT rates on the same line of their invoice. This isn’t possible; not within the software due to the technical aspect, but also financially-speaking.

While it is possible to include items with different VAT rates on the same invoice, this must also follow some basic regulations - mainly that each different VAT amount is clearly stated on the invoice.

In the UK, HMRC sets out clear guidelines for your invoices. Debitoor invoicing templates help you adhere to these regulations

Different VAT rates on the same line

Not only does trying to combine different VAT rates in the same line tend to be confusing for your customer, it would also be confusing for the tax authorities, which is something most entrepreneurs should certainly try to avoid.

Despite these seemingly obvious reasons for ensuring that your invoices templates don’t allow you to accidentally or intentionally create invoices that are not technically correct, our user insisted that this was a feature that they needed.

Why? Because, they explained, they were selling a variety of products as a bulk package, meaning they wanted to be able to group these products, even though the individual products fell within different VAT rates. This is why they wanted to be able to provide different VAT rates for one line of an invoice.

Did we mention they also intended to provide a discount? Thankfully that part is easy with invoice software like Debitoor.

Despite this seemingly obvious explanation of why the user wanted to create an invoice line with different VAT rates, fiscally, it isn’t possible to take these kinds of liberties. Although they wanted to adhere to the legal regulations surrounding invoices but couldn’t quite reconcile their invoice template structure with the requirements, it isn’t a layout that is acceptable.

There are clearly defined rules set forth by HMRC, that indicate that different VAT rates must be clearly stated, and sometimes this means splitting up products in your invoices, even if they are delivered as one.

The fiscal and commercial

While it is a bit confusing to split the invoicing process into a fiscal, tax-based document and a commercial, transaction-based document, it is important to understand both sides of why exactly an invoice is such a crucial document for businesses. And because of this, it’s important to get it right.

Invoicing software like Debitoor provides invoice templates that are designed and updated specifically to adhere to the latest legal requirements for invoices, meaning that if it is not possible to add something like different VAT rates within the same line, this is probably either not legal, or not recommended fiscally-speaking.

In addition, invoicing software combines other important aspects of keeping track of your business finances, including entering payments, tracking the status of your invoices, and registering expenses to stay on top of cash flow and VAT to be reclaimed.

This kind of software also includes the commercial documents that, while they might not have legal significance, can be highly helpful to the daily operations of your business. Namely, delivery notes, quotes, and pro forma invoices.

These documents help improve your communication with your customers, thereby increasing your professionalism and helping your business stand out from the competition.