An invoice template without VAT? Is that even possible? It is, in fact. And it is an important option to have if you’re working with invoice software or if you’re creating your own invoices from an invoice template in Excel or Word.
For sole traders and small business owners, the need to ensure you’re following all of the necessary VAT, invoicing and legal regulations can start to get overwhelming. Understanding whether your business is fully or partially VAT-exempt can certainly make things a bit easier from the start.
How does VAT exemption work?
Depending on your business, the goods or services you provide could be VAT exempt. In the UK, there are a number of different goods and services that fall under the ‘exempt’ category. What does this mean? It means that if your business deals in only these products or services, you cannot be VAT-registered. In this case, you will need to get comfortable with a good invoice template without VAT.
If your business only deals partially with a VAT exempt good or service, for example, if you purchase supplies that are not exempt. You can reclaim tax that your company has had to pay, generally if it’s not exempt and falls under a certain amount. Read more on gov.uk’s page about VAT exemption.
Is your business VAT exempt?
If you’re in doubt, it’s best to check with the tax authorities to double check. Types of goods and services that fall under the exempt category include:
- Sporting activities
- Membership fees for organisations
- Fundraising events for charities
- Education and training
- Financial services
- Letting, leasing and sale of commercial property
Is exempt the same as zero-rated?
Goods or services that fall under 0% VAT are considered ‘zero-rated’ and are not the same as VAT exempt. However, the two categories are similar in that no VAT is added to the sale price, however, zero-rated items or services are considered taxable but just at 0%.
For zero-rated services or products, you can apply to be exempt from VAT if you deal only with this type of product or service, including supplies.
Zero-rated items and services include safety gear that meets current standards, such as helmets and protective boots, baby and children’s clothing, shops selling goods donated to charity, etc.
VAT exemption on your invoice template
So how do you handle VAT-exempt goods or services on your invoices? When creating an invoice, you must first make sure that you have removed or disabled the VAT rate option in online invoicing software. Simply applying 0% VAT to an item that is actually VAT exempt is not an alternative.
The 0% VAT should only be used for goods or services that are zero-rated officially, according to tax authorities. For VAT-exempt businesses, the VAT line and calculation should be eliminated from the invoice. It is also recommended that the seller includes a note stating that the goods or services provided are VAT-exempt, citing the applicable VAT Notice.
For example: ‘Invoice is VAT exempt - VAT Notice 701/30.’
In invoice software like Debitoor, this can be done easily in the ‘Terms’ box when creating a new invoice. You can also save this text as default to be automatically applied to all of your invoices.
If you are not VAT registered, you should similarly remove or disable the VAT option in your invoice software.