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VAT invoice

VAT invoice – What is a VAT invoice?

A VAT invoice is a specific type of invoice that’s issued when a sale is subject to sales tax.

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Only businesses that are registered for VAT should issue VAT invoices, and it’s only compulsory to do so if your customer is also registered for VAT.

Businesses that aren’t registered for VAT should never charge sales tax and should always issue standard invoices instead of VAT invoices.

VAT invoice requirements

For a VAT invoice to be considered legal, complete, and compliant, it needs to contain some key pieces of information.

HMRC’s VAT invoice requirements state that a full VAT invoice needs to include:

  • A unique, sequential invoice number
  • Your business name
  • Your registered address
  • Your VAT number
  • An issue date
  • A date of supply
  • Your customer’s name and address
  • A description of the goods or services provided
  • The price per item (not including VAT)
  • The rate of VAT charged per item
  • The quantity of each item
  • Any discounts applied to each item
  • The total amount due (not including VAT)
  • The total amount of VAT due.

Modified and simplified VAT invoices

If you’re required to issue a VAT invoice, you’ll usually need to issue a full VAT invoice. But for certain transactions, you can issue a simplified or modified VAT invoice instead of a full VAT invoice.

Modified and simplified VAT invoices are usually issued by retailers. Because retailers primarily sell directly to consumers, they usually don’t need to issue VAT invoices. However, if a customer requests an invoice, retailers can issue modified or simplified invoices, depending on the value of the transaction.

Modified VAT invoice

Modified VAT invoices are issued by retailers for sales of £250 or more.

Modified VAT invoices need to meet all of HMRC’s VAT invoice requirements, and the only main difference between a modified VAT invoice and a full VAT invoice is that a modified VAT invoice has to show the total amount due including VAT as well as the net price and amount of tax due.

Simplified VAT invoice

Whether you run a retail business or another kind of company, you can issue a simplified VAT invoice instead of a full VAT invoice if the total value of your invoice is less than £250 (including VAT).

Unlike a full VAT invoice, a simplified VAT invoice doesn’t include a date or details about your customer. A simplified VAT invoice also doesn’t need to include a detailed breakdown of prices; instead, it only needs to show the rates of VAT charged and the total amount due including VAT.

When do I need to issue a VAT invoice?

If you sell taxable goods or services to VAT-registered business, you have an obligation to provide a VAT invoice instead of a standard invoice. Taxable goods and services might be taxed at the standard rate of 20%, the reduced rate of 5%, or a rate of 0%.

You also need to issue a VAT invoice if you sell a combination of taxable and VAT-exempt products.

You don’t have an obligation to issue a VAT invoice if:

  • Your sale only includes VAT-exempt goods or services
  • You give products away as a gift
  • Your customer has a self-billing arrangement
  • Your customer isn’t registered for VAT.

Examples of when to issue a VAT invoice

You make a sale that contains two different types of goods. One of your products is taxed at 20% and the other is taxed at 5%. You do have an obligation to issue a VAT invoice.

You provide two different services. One of the services is taxed at 20% and the other service is VAT-exempt. You do have an obligation to issue a VAT invoice.

You sell a service that's exempt from VAT. You do not have an obligation to issue a VAT invoice, and you can issue a standard invoice instead.

Record keeping for VAT invoices

As a VAT-registered business, you’re required to keep records of your VAT invoices for a minimum of six years (or ten years if you use the VAT MOSS service).

HMRC might check these records to confirm that you’ve been charging and paying the correct amount of VAT, so they need to be complete, accurate, and readable.

You can choose between keeping physical paper records of your VAT invoices or using online software to keep electronic records.

What do I need to keep a record of?

You need to make sure that you keep copies of every VAT invoice that you issue (even if these invoices are cancelled or issued by mistake).

You also need to keep copies of VAT invoices for any purchases you make. If a purchase invoice gets lost or damaged, you should ask your supplier to send you a copy, which needs to be marked with the word ‘duplicate’.

If you use Making Tax Digital for VAT, you also need to keep a digital record of any information that you might need to use when you complete your VAT Return. There are specific rules for digital record keeping as part of MTD that might differ slightly from the rules about record keeping for VAT invoices.

VAT invoice vs. standard invoice

In many ways, VAT invoices are extremely similar to standard invoices. They both confirm details of a sale, and they are both legal documents.

However, there are a few differences between VAT invoices and standard invoices. For example, while VAT invoices need to contain information about sales tax, standard invoices do not. Another clear distinction between VAT invoices and standard invoices is that only VAT-registered businesses should issue VAT invoices, and businesses that haven’t registered for VAT should always standard invoices instead.