What qualifies as a VAT invoice?

A VAT (Value Added Tax) invoice is a bill that a business provides to its customers to charge VAT on goods or services. It contains key details about the supply and VAT charged. For an invoice to qualify as a valid VAT invoice, it must contain certain information as required by HMRC.

What are the requirements for a VAT invoice?

A VAT invoice must contain the following information:

• Invoice date
• Unique invoice number
• Supplier’s name, address and VAT registration number
• Customer’s name and address
• Description sufficient to identify the goods or services supplied
• For each description, the quantity of goods or extent of services, and the rate of VAT and amount payable (excluding VAT)
• Rate of any cash discount offered
• Total amount of VAT charged
• Total amount payable including VAT

Here are more details on the key requirements:

Invoice date

The invoice must be dated, showing the date of issue or the date the goods/services were supplied if this is different.

Invoice number

A unique invoice number or reference enables the document to be identified. The number should follow on sequentially from the last invoice.

Supplier’s details

The supplier’s name, address and VAT registration number must be shown. This identifies the business issuing the invoice. The VAT number is important for customers to reclaim input VAT.

Customer’s details

The customer’s name and address must be included. This identifies the business or person being invoiced.

Description of goods/services

The goods or services supplied must be described in sufficient detail to identify what was provided. Generic descriptions like “goods supplied” are not enough.

Quantity and VAT rate

For each item listed, the quantity, VAT rate charged, amount excluding VAT and total VAT charged must be shown. This breaks down the VAT calculations.

Total VAT amount

The total VAT charged on the invoice must be clearly identified. This is the sum of the VAT against each item.

Total amount payable

The total amount payable, including VAT, must be shown. This should match the amount the customer actually pays.

Are there any other requirements?

Some other common requirements for VAT invoices include:

• Being addressed to the customer
• Stating the place of supply if different to the supplier’s address
• Being issued within 30 days of completing the supply
• Stating if the customer must account for VAT (reverse charge)
• Being provided in pounds sterling (GBP)

The invoice may also show payment terms, bank details, contact information and other details as required.

What happens if the VAT invoice is incorrect?

If a business issues a VAT invoice that does not meet all the requirements, it will not qualify as a valid VAT invoice. The implications include:

• The customer cannot reclaim the input VAT
• The supplier remains liable for the VAT charged
• It could lead to VAT penalties from HMRC

To avoid problems, suppliers should thoroughly check VAT invoices meet the requirements before sending them to customers. If an error is found, a correction can be made by issuing a valid replacement invoice.

When is a VAT invoice not required?

There are some cases where a full VAT invoice is not required:

• For sales under £250 to unregistered EU customers
• For retail sales to individuals
• For cancelled sales where the invoice has not been paid
• For sales covered by a discounted VAT scheme

However, suppliers must be able to prove to HMRC that such sales are VAT accounted for. Simplified receipts may be issued rather than full VAT invoices.

Example of a VAT invoice

Here is an example showing what a typical VAT invoice looks like and the key details it must contain:

This invoice contains all the required elements including date, unique number, supplier and customer details, description of services, VAT treatment and amounts. This would qualify as a valid VAT invoice.

How to check if a VAT invoice is compliant

To check if a VAT invoice meets the requirements, go through the following checklist:

• Is the invoice dated?
• Does it have a unique reference number?
• Does it state the supplier’s name, address and VAT number?
• Does it state the customer’s name and address?
• Is the description of goods/services detailed enough?
• Is the quantity, rate and amount (excl VAT) shown for each item?
• Is the total VAT amount stated?
• Does the invoice show the total payable amount?

Tick off each item that is present on the invoice. If any requirements are missing, it does not qualify as a valid VAT invoice.

What are the penalties for incorrect VAT invoices?

HMRC can impose financial penalties if businesses do not comply with VAT invoicing rules. The penalties can be:

• Up to £2,500 for each incorrect invoice
• Up to £5,000 if the errors are deliberate
• Up to £3,000 for late registration for VAT
• Up to 30% of any underpaid VAT

Penalties are more likely if the business has issued multiple invalid invoices or seems negligent in meeting the requirements. Businesses should ensure they fully understand VAT invoicing rules to avoid penalties.

How long should VAT invoices be kept for?

Businesses must keep copies of VAT invoices issued and received for VAT record keeping purposes.

The retention periods are:

• 6 years for paper invoices
• At least 6 months for electronic invoices

The records must be kept to support the company’s VAT accounting system and payments to HMRC. Storing invoices electronically can save storage space but they must be accessible if needed for HMRC inquiries.

Can VAT invoices be issued electronically?

Yes, businesses can issue and receive VAT invoices electronically. To do this validly:

• The invoice must contain all the required information
• There must be a valid reason to receive invoices electronically
• The customer must consent to electronic invoicing
• Invoices should have an e-signature or unique identifier
• Invoices must be accessible and legible

Electronic invoices are common nowadays and can simplify record keeping. But VAT rules still apply for the contents of e-invoices.

Is a pro-forma invoice the same as a VAT invoice?

No, a pro-forma invoice and VAT invoice are different documents:

• A pro-forma is issued before payment as an estimate
• A VAT invoice is issued after payment showing VAT charged
• A pro-forma does not allow the customer to reclaim VAT
• A VAT invoice is needed to account for VAT on sales

Pro-forma invoices are not valid for VAT purposes. A VAT invoice must be issued where VAT is due.

Conclusion

A VAT invoice is an important legal document to account for VAT. It must contain specific details about the supplier, customer, goods/services supplied and VAT breakdown. Invoices should be thoroughly checked to ensure they meet all the requirements and VAT rules before being issued to customers.

Following the correct rules for VAT invoicing avoids problems and penalties further down the line. If any details are missing or incorrect on a VAT invoice, it will not be valid and the VAT cannot be reclaimed by the recipient.

Businesses should take time to understand what legally qualifies as a VAT invoice. This will ensure their sales invoices comply with HMRC’s standards for VAT accounting.