Proforma invoices and VAT

It's common for freelancers and small businesses to issue proforma invoices when the final details of a sale haven’t yet been confirmed. But, because there are fewer official guidelines for proforma invoices than for finalised invoices, it’s easy to get confused about what information should be included, when they can be used and how they should handle VAT.

This article provides an overview of proforma invoices and VAT. It explains whether you should include VAT on your proforma invoices and whether proforma invoices are considered official documents for tax purposes.

Can a proforma invoice be used for tax purposes?

According to HMRC, proforma invoices aren’t considered to be commercial invoices or VAT invoices. As they aren’t considered to be VAT invoices, you can’t reclaim VAT using any proforma invoices that you’ve been sent by a supplier; instead you need a full, finalised invoice.

Furthermore, because finalised invoices are required as part of a company’s official VAT records, you must issue a proper, finalised VAT invoice for any customer that you supply goods or services to, even if you initially sent them a proforma invoice.

Should I include VAT on a proforma invoice?

If your business is VAT-registered, you need to ensure that every invoice you issue contains certain details about VAT, including your VAT number, the rate of VAT charged for each product or service and the total amount of VAT due.

Because proforma invoices aren’t considered to be official invoices, they’re not subject to the same rules and regulations, so it isn’t strictly necessary to include details about VAT on any proforma invoice that you send. However, there are a couple of advantages to including this information.

Firstly, because proforma invoices are essentially draft invoices, it's important that they are as close to the official invoice as possible. Including details about VAT helps your customer know exactly how much they can expect to pay and therefore reduces any risk of misunderstanding or confusion about how much is due.

Secondly, it's much quicker and easier to convert a proforma invoice to a finalised invoice if you use the same invoice template. If you’re registered for VAT, your invoice template should always include details about VAT, so including the same information about VAT in your proforma invoices saves you from having to add these details later on.

When not to include VAT on a proforma invoice

Although your proforma invoices should usually contain details about VAT, there are a few instances when it's better to leave this information out.

Firstly, if you’re not registered for VAT, you should never include details about VAT on any invoice you issue. This applies to both proforma and finalised invoices. 

Secondly, if you are VAT-registered, there might still be instances in which you make sales that aren’t subject to VAT. For example, if your sale only contains VAT-exempt products or services or if you’re selling abroad and the sale isn’t within the scope of VAT.

If your sale isn't covered by VAT, you shouldn’t include any details about it, although you may need to include information about other applicable charges or taxes such as Customs Duty or Excise Duty.