What are VAT invoices and who needs to issue them?
Value-added tax (VAT) is a type of consumption tax which is added to the cost of most sales. In the UK, the standard rate of VAT is 20% for most goods and services. There's also a reduced rate VAT of 5% and zero-rated VAT for specific goods and services.
Your business may need to apply VAT to sales and issue VAT invoices to your customers. This article outlines which businesses need to issue VAT invoices, the legal requirements for them and the different types of VAT invoices. A sample invoice and VAT invoice templates are also included.
Who needs to issue VAT invoices?
VAT invoices can only be issued by VAT-registered businesses. In the UK, it's required to register for VAT if your yearly taxable turnover exceeds £85,000. This includes any taxable sales (not including tax-exempt sales) made throughout the UK tax year of April 6th - April 5th.
It's also possible for your business to voluntarily register for VAT if your turnover is below the £85,000 threshold. Voluntary registration is usually done by businesses that expect to reach the threshold in the future or wish to reclaim VAT on business expenses.
If you’ve reached the threshold or wish to voluntarily opt-in for VAT, you can register online from the UK Government website. Once registered with the authorities, you'll receive a VAT registration number (VRN) for your business.
How will VAT affect my business?
Registering for VAT will affect your business sales, expenses, and accounting reports. You'll need to keep a detailed record of your transactions and submit reports to HMRC at the end of each accounting period. Some ways that VAT will affect your business include:
You'll need to charge VAT on your sales and issue VAT invoices to your customers.
You'll need to submit a VAT Report to HMRC at the end of each accounting period.
You can claim back any VAT paid for business expenses.
It may affect your cash flow: you may owe money to HMRC or receive a VAT refund based on your VAT Return.
It's important to recognise that your customers will need to pay VAT on sales. If your sales are to other VAT-registered businesses, they can reclaim the VAT. However, if your sales are to end consumers, then they cannot reclaim VAT and will need to pay more for your goods or services, which may affect your sales.
VAT invoice requirements
VAT invoices are official documents that require certain information to be considered valid in the eyes of HMRC. VAT invoices will include all of the required fields for non-VAT invoices as well as further VAT information.
All invoices (VAT and non-VAT) require the following information:
Your business and customer’s name and address
A unique identification number (invoice number)
The invoice issue date and date of supply
A description of the items included in the sale
The cost of each product or service
Any discounts
The total amount due
VAT invoices also require:
Your VAT registration number (VRN)
The net price of each product or service
The VAT rate (20%, 5%, or 0%) of each product or service
The subtotal of the sale excluding VAT
The total amount of VAT being charged on the sale
This information is required for full VAT invoices. If you're issuing a different form of VAT invoice, some of this information may not be required (see more information below).
If you sell goods or services to VAT-registered businesses in the EU, you should check if you need to issue a reverse charge invoice.
The different types of VAT invoices
There are 3 different types of VAT invoices that you can issue to your customers: full VAT invoices, simplified VAT invoices, and modified VAT invoices. Each has a specific purpose and has certain requirements for when you can issue them. Each is explained in detail below.
Full VAT invoice
A full VAT invoice is the standard form of VAT invoice and the one that is most commonly issued. If you're ever in doubt about which type of VAT invoice you should issue, then issue a full VAT invoice. A full VAT invoice includes all of the legally required information stated above.
Simplified VAT invoice
Simplified VAT invoices are exactly what you'd expect - a simplified version of a full VAT invoice. Simplified VAT invoices can only be issued for sales of up to £250. If the sale is above £250, then you must issue a full or modified VAT invoice.
A simplified VAT invoice will include all prices as VAT inclusive rather than exclusive. This means that you don't need to include the net price of each product or service, or include the VAT rate or subtotal. Instead, you simply enter the gross amounts and state the total amount due, including VAT.
A simplified VAT invoice also doesn't require the date or customer’s name and address.
Modified VAT invoice
A modified VAT invoice is similar to a full VAT invoice but includes the VAT-inclusive price of each product or service, as well as the VAT-inclusive total.
Modified VAT invoices should only be issued when the sale includes a taxable item, is over £250, and has been agreed upon by your customer to use the VAT-inclusive amounts. If your customer doesn't agree to a modified invoice, you'll need to issue a full VAT invoice.
VAT invoice template
Using invoice templates is a great way to customise your invoices and ensure that they're legally compliant.
Some businesses use invoicing software to create invoices, while others opt to use offline programs such as Word or Excel. If Word or Excel is your preferred software, you can download free VAT invoice templates below. If you're not VAT registered, you can also download free non-VAT invoice templates for Word and Excel.
Although Word and Excel are popular programs, they were not created for the purpose of making invoices. You should consider if invoicing software may be better suited for your business.
Invoicing software for VAT invoices
Invoicing software is used specifically for your invoicing and accounting needs. It will help you create professional, legally compliant invoices, and keep track of your customers and products. Here's an example of a VAT invoice created with SumUp Invoices:
With SumUp Invoices, you can create and issue compliant VAT invoices in less than 1 minute. Your invoices will automatically include a payment link so your customers can pay instantly and effortlessly online.
