Knowing how to create a VAT invoice is essential for many small businesses.
Perhaps you’ve set up as a small business or are earning enough that you must register for VAT (£90,000 per year as of February 2025).
David Kindness is a Certified Public Accountant (CPA) and tax expert: “Creating a VAT invoice isn’t complicated once you know the basics, but it can feel overwhelming the first few times. You’re essentially documenting a transaction while ensuring all the required information is in place to comply with tax laws,” he said.
We’ll talk you through what you should include, other VAT creation options and the info you need to know for creating your invoice.
How do I create a VAT invoice?
Becoming VAT registered is a major milestone for any business, but it does mean including a few extras details on your invoice, acknowledges Lee Murphy of The Accountancy Partnership. “As well as providing all of the usual details such as your name, address, and amount, you’ll also need to give a breakdown of how much VAT has been charged, what it was charged on, and what rate was used on each item,” he said.
If your invoice includes multiple goods or services, it’s important to show each item on a separate line. That way you can show the breakdown of VAT rates and charges more clearly.
Some accounting platforms have their own ways of creating these documents, which is fairly straightforward. Otherwise, you could just use a word-processing tool like Microsoft Word. Use our template to get you started and change the details as you need to.
“That said, the Making Tax Digital rules mean that VAT registered businesses must keep records electronically, so it’s well worth considering looking for invoicing software – or even accounting software which includes an invoicing function,” said Murphy. “This type of software will automatically update your records each time you create and send an invoice, and then use this information to keep your VAT reporting up to date without lots of extra admin (and all the extra time that takes!)”
What should I include in my VAT invoice?
According to the government website, invoices must include:
- VAT registration number
- Unique identification number
- Company name, address and contact info
- Company name and address of customer
- A detailed breakdown of what you’re charging for, broken down by good/service
- The date the goods/services were provided
- The date of the invoice
- VAT due
- The total amount owed, excluding VAT
- The total amount of VAT
- The rate of VAT being charged per item (be clear if any items are exempt or zero rate)
- Discount on any VAT items
Kindness said that you should add the customer’s name, address, and VAT number if they’re VAT-registered. It’s especially important for businesses working internationally because this helps both parties stay within the rules.
“Say you’re invoicing for graphic design services—don’t just write ‘design work’. Instead, break it down into specifics like ‘logo design’ or ‘social media templates’.”
This is for a full invoice. Other VAT invoices include:
Modified VAT
A modified VAT receipt should be used if you’re charging retail supplies over £250. It must include all of the same information, but should include the total amount including VAT.
Simplified VAT
Simplified invoices can be used for invoices up to £250. Of it totals more than £250 then it must be a full or modified invoice.
A simplified invoice includes all prices as VAT inclusive rather than exclusive. Include gross amounts, then total amounts including VAT. It doesn’t need the date of the customer’s name and address either.
What else do I need to know?
When dealing with foreign currencies, you must show the VAT payable in sterling on your invoice. That’s if the supply was in the UK.
Keep an English translation of any invoice written in a foreign language – and provide it within 30 days if you’re asked to by HMRC.
Note that when you’re converting the VAT from a foreign currency into sterling on your invoice, you have to use the UK market selling rate at the time of supply or HMRC’s period rates of exchange.
If your VAT rate changes or new rules come into effect, staying on top of updates will save you from making costly errors.
“Adding a small touch like a thank you note on your invoice isn’t necessary but shows professionalism and care,” says Kindness, staying true to his name. “It’s the kind of detail that helps build good relationships with clients.”
Melissa Faraday, head of finance at MediaVision, said:
- Keep your invoice clean, professional, and easy to read
- Save a copy of all invoices for tax purposes. In the UK, VAT records must be kept for at least six years
- Ensure you comply with all VAT regulations, including registration thresholds and correct VAT rates. If you’re unsure, consult a professional
- Review your invoices for accuracy. Make sure all details are correct, especially when sending them to the right client
Failure to include these items on your invoice, could stop your customers from being able to claim back the VAT you charge them, said Catherine Heinen FCCA of TaxAssist Accountants.
“It’s really important to invoice your customers promptly,” said her colleague Jo Nockels FCCA FMAAT, Head of Group Practice Capabilities at TaxAssist Accountants. “It gives the customers a great impression that you are professional and on top of your affairs, and the sooner you invoice; the sooner you get paid. If your business takes you out and about, consider installing tools like the QuickBooks Online app on your phone so that you can quote or invoice while you are still with your customer.”
Read more
What is the VAT threshold? – At what point does your small business have to start paying VAT? Should you voluntarily pay VAT? And what are legitimate ways to stay under the VAT threshold?
Tax advantages of a limited company versus sole trader – Haydn Rogan explains the tax advantages and disadvantages of status as a limited company and as a sole trader
Tax planning tips for small businesses – Ralph Hearn, partner at Wellers, shares his tax planning tips, focusing on Corporation Tax, business rates and National Insurance
Publisher: Source link