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Proforma invoices and VAT

It's common for freelancers and small businesses to issue proforma invoices when the final details of a sale haven’t yet been confirmed. But, because there are fewer official guidelines for proforma invoices than for finalised invoices, it’s easy to get confused about what information should be included, when they can be used, and how they should handle VAT.

To make things clearer, this article takes a look at whether you should include VAT on your proforma invoices and whether proforma invoices are considered official documents for tax purposes.

A proforma invoice created with Debitoor invoicing and accounting software

Can a proforma invoice be used for tax purposes?

According to HMRC, proforma invoices are not considered to be commercial invoices or VAT invoices. Because proforma invoices are not considered to be VAT invoices, you cannot reclaim VAT using any proforma invoices that you’ve been sent by a supplier; instead you would need a full, finalised invoice.

Furthermore, because finalised invoices are required as part of a company’s official VAT records, you must issue a proper, finalised VAT invoice for any customer that you supply goods or services to, even if you initially sent them a proforma invoice.

Should I include VAT on a proforma invoice?

If your business is VAT-registered, you need to ensure that every invoice you issue contains certain details about VAT, including your VAT number, the rate of VAT charged for each product or service, and the total amount of VAT due.

Because proforma invoices are not considered to be official invoices, they are not subject to the same rules and regulations, so it isn’t strictly necessary to include details about VAT on any proforma invoice that you send. However, there are a couple of advantages of including this information.

Firstly, because proforma invoices are essentially draft invoices, it's important that they are as close to the official invoice as possible. Including details about VAT helps your customer know exactly how much they can expect to pay and therefore reduces any risk of misunderstanding or confusion about how much is due.

Secondly, it's much quicker and easier to convert a proforma invoice to a finalised invoice if you use the same invoice template. If you’re registered for VAT, your invoice template should always include details about VAT, so including the same information about VAT in your proforma invoices saves you from having to add these details later on.

When not to include VAT on a proforma invoice

Although your proforma invoices should usually contain details about VAT, there are a few instances when its better to leave this information out.

If you’re not registered for VAT, you should never include details about VAT any invoice you issue – whether its a proforma invoice or finalised invoice. If you are VAT-registered, there might be instances in which you make sales that are not subject to VAT. For example, if you sell to customers outside of the UK, your sales might not be taxable (depending on where the customer is based, whether you sell goods or services, and whether the sale is B2B or B2C).

If your sale isn't covered by VAT, you should not include any details about it, although you may need to include information about other applicable charges or taxes such as Customs Duty or Excise Duty.

Proforma invoices, VAT, and Debitoor

One of the easiest ways to create a proforma invoice is with invoicing software like Debitoor. With Debitoor, you can create a proforma invoice in less than a minute. When your customer accepts the order, you can convert the proforma invoice to a finalised invoice with just a few clicks.

Plus, Debitoor makes it’s simple to apply VAT any invoice – proforma or finalised. All you need to do is activate VAT in your account settings, you can then:

  • Apply VAT to every invoice
  • Automatically calculate the total amount of VAT due for each sale
  • Save specific VAT rates for individual goods or services
  • Submit your VAT Returns directly to HMRC