Business Glossary

What is a VAT Invoice?

Please note that this article is intended for educational purposes only and should not be deemed to be or used as legal, employment, or health & safety advice. For guidance or advice specific to your business, consult with a qualified professional.

If you’re in business, you’ll have heard the term invoice and probably used it to do business – it’s simply an accounting document you send to a client to request payment for goods or services. A value-added tax (VAT) invoice is a specific type of invoice which includes sales tax on it.

It outlines details of the goods and services provided, the price, whether a client has a credit account, billing information, what your payment terms are and how they can pay.

Send a VAT invoice if you’re VAT registered, and it’s only compulsory if the business you’re sending to is also VAT registered. Never send one or charge VAT if you’re not VAT registered.

How do I create a VAT invoice?

There’s no statutory invoice template – a basic template with the right details is sufficient. Both Word and Excel have invoice templates and there are also free templates available on the internet.

However, business software like Square Invoices speeds up the billing process and gets you paid faster by giving you access to easy-to-use invoice templates, allowing you to send electronic invoices and to offer clients online payment options.

The benefits of using accounting or business software over something like an Excel or Word invoice template mean much of your billing information is generated automatically. You only need to input your details once, then each time you generate an invoice and request payment, the details are already there in your own unique template.

All these systems also automatically calculate the VAT due and let you keep track when it comes to filing your VAT return, which is far more efficient and accurate than a paper-based system.

What are the VAT invoice requirements?

Whether you create the invoice from scratch or use an invoice template, there’s certain information you must include to be compliant with HMRC:

  • A unique, sequential invoice number

  • Issue date

  • Supply of goods and services date

  • Registered address

  • VAT number

  • Customer name and address

  • Itemised list of goods and services

  • Quantity of each item

  • Price per item (not including VAT)

  • The rate of VAT charged per item

  • Any discounts due

  • The total amount due minus the VAT

  • The total amount due including VAT

Also include payment terms, credit terms if it’s a credit account and contact information for billing queries.

Frequently asked questions

How do I calculate VAT on an invoice?

There’s a simple formula to help you calculate the VAT. The current UK rate on most goods is 20%, so simply multiply the amount by 1.2. If the VAT rate is 5%, then it’s 1.05. Leave it as it is for zero-rated goods.

Of course, if you use invoicing software it automates the calculations as well as letting you customise your template and speed up billing.

Do I have to provide a VAT invoice?

If you’re VAT registered and charge VAT on the goods and services you sell, provide a VAT invoice. For in-person sales, however, you don’t need to provide one – a payment receipt is enough – but if the buyer asks for it, you should give them one.

Do I have to pay VAT on an unpaid invoice?

For billing purposes, the date of recognition is the date the invoice was issued, not the date it’s actually paid so yes, you could find yourself paying the VAT before you receive payment from the customer.

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