Keeping compliant with VAT requirements on invoices can be daunting but it’s important, many business owners and employees make basic mistakes when preparing invoices that include VAT without even being aware. So in this article, we break down the fundamentals of how to make your invoice compliant in terms of VAT requirement. Be sure to follow these steps when charging output VAT to your customers:
- charge the right rate of VAT
- work out the VAT if a single price is shown that includes or excludes VAT
- show the VAT details on your invoice
- show the transaction in your VAT account
- show the amount on your VAT return.
HMRC denotes any sales invoices including VAT as ‘VAT invoices’. VAT invoices must be compliant with HMRC by fulfilling specific requirements.
VAT Invoice Requirements
There are three types of VAT invoices. HMRC stipulates different requirements for each kind of invoice, which you can find below. For a full list of HMRC requirements, you can visit the HMRC website.
Full Invoices
A full VAT invoice is used for most transactions. Full VAT invoices must show:
- the supplier’s name, address and VAT registration number
- the name and address of the person receiving the supplied goods
- a unique identification number
- the date of issue
- the date of supply of the goods or services (in some cases the same as the date of issue)
- a description of the supplied goods or services, including the quantity of each item
- the price per item, excluding VAT
- the rate of VAT charged per item
- rate of discount per item
- total amount excluding VAT
- total amount of VAT.
Modified Invoices
Currently for retail supplies over £250, you must use a modified invoice. It must include all the information listed above as well as the total amount, including VAT.
Simplified Invoices
Currently for any retail supplies totalling less than £250, you can use a simplified VAT invoice. Simplified invoices must only show:
- the supplier’s name, address and VAT registration number
- a unique identification number
- the time of supply of the goods or services
- a description of the supplied goods or services
- the rate of VAT charged per item
- the total amount including VAT.
You must use an entirely unique number for every single invoice you issue. The number should be sequential – you may use a different sequence per customer, so long as the series of invoices is unique. Some companies choose to use customer prefixes on the invoices. If you decide to use customer prefixes, ensure that each customer has a unique prefix.
Treatment of Foreign Currencies
If you are invoicing for transactions in foreign currencies, you must show the total payable VAT in pounds sterling on your invoice. For any invoices written in a foreign language, you must retain an English translation of the invoice. HMRC may request an English translation, and you must be able to provide one within 30 days. When you convert the total payable VAT into sterling from a foreign currency, you must use one of the methods given by HMRC:
- the market selling rate at the time of supply
- the rate used by the European Central Bank
- HMRC’s period rates of exchange.
If you want to use an accounting method for foreign invoices which is not listed above, you will need to contact HMRC for permission.
