Now that you know how to properly calculate and add invoice tax to your invoices, learn about a VAT invoice and how it affects your business billing.

Here is all the information to send a VAT invoice.

What is a VAT invoice?

First of all, VAT stands for Value Tax Added. VAT is a term more frequently used in the European Union. A VAT can refer to a general tax or a consumption tax, among other different types of taxes.

Usually, a VAT invoice is issued when one VAT-registered business sells goods or products to another VAT-registered business. If a customer, who is not VAT-registered purchases items from a VAT business, then no VAT invoice is necessary.

According to the Cambridge Dictionary, a VAT invoice is an electronic or a paper document that proves the value added tax a person has paid to a business or a company for goods or services.

Elements to include in a VAT invoice

A strictly VAT invoice must include all of the following components:

  • A unique invoice number, the invoice date, along with all address and contact information for both parties
  • The VAT registration number
  • A detailed description of the services for which the value added tax applies
  • The prevailing rate, which is usually 20 percent for typical contractor services
  • The actual VAT amount

Elements to include when your company is applying for VAT

If you are a business applying for VAT registration, it is suggested to follow a pro forma invoice format for all invoices up until you receive the proper VAT registration and its unique number. It is likely that the pro forma invoices will be reissued once you receive the VAT number, as the client will still have to pay the value added tax.

While waiting to receive your limited VAT registration number, you will want to state on all invoices that you are waiting on your VAT registration to be complete.

A VAT invoice that is pending VAT registration completion must include the following information:

  • A unique invoice number along with the date the invoice was created
  • The contractor’s company name and address, along with any additional contact information
  • The client or agency’s name and address, plus any other contact information
  • A detailed description of the services provided

Once you complete your VAT registration, you’ll receive a specific VAT number. All invoices from that point forward must include the VAT number, the amount of VAT charged, and the rate used, in order to be fully compliant.

Keep an archive of your VAT invoices

As part of the VAT invoice process, you must keep and file all of your VAT invoices, even if you cancel them or produce invoices by accident. It should also be noted that all VAT invoices must be issued within 30 days of purchasing the products or services. No VAT invoice needs to be issued if the items purchased were considered to be a gift, or if your customer operates on a self-billing arrangement.

While a VAT invoice sounds complicated, it’s important to include all of the proper information so the invoice can be fulfilled as fast as possible, and without problems. If the VAT invoice isn’t formatted correctly or doesn’t include the right information, there could be delays in getting your payment, which often happens in UK business. Don’t let it happen to you!

As with any other type of invoice, a VAT invoice should still look professional and include proper header information along with a company logo, if applicable. The invoice should include all of the VAT-specific information, as well as all of the necessary information on how to complete a payment and a date for when the payment is due. Also, be sure to thank your client at the end of the invoice!