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Introduction

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The creation and issuing of VAT invoices forms an integral part of the VAT reporting process and VAT Registered businesses must issue an invoice for any standard rated or reduced rate services they supply.

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The invoice then acts as evidence for the purchaser to enable them to recover the VAT charged from HMRC if they are registered for VAT and make taxable supplies themselves. 

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Note: VAT invoices are not required to be issued for Exempt or Zero Rated Supplies. 

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A VAT invoice must normally be issued within 30 days of the tax point arising.

 

The 30 day time limit can be extended without applying to HMRC in the following cases:

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• You’re awaiting VAT invoices from your own suppliers or sub-contractors

• An extension of the 14 day limit has already been approved

• Special accounting arrangements have been approved

• Where a business has been newly registered but have not been notified of your VAT registration number - 30 day rule starts from date the business is advised of their new VAT registration number 

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Tax Point Rules

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Tax points are the specific points in time when sales of goods or services take place and are governed by rules set out by HMRC.  

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VAT registered businesses must account for VAT within the period the tax points for their sales occur.  So if a tax point occurs in March and the businesses next VAT return period is January to March then the VAT on the sale will have to be included within the VAT return quarter ending March.

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Basic Tax Point

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• Goods - The date when you send them to your customer or the customer takes them away or for goods assembled at a suppliers premises, when the goods are made available to the customer

• Services - The date when the service is performed — it’s normally taken as the date when all the work except invoicing is completed

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Actual Tax Point

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The basic tax point will be overridden if an actual tax point is created. 

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An actual tax point is created when:

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• An invoice is issued or payment is received (whichever is first) before the basic tax point.

• An invoice is issued up to  14 days after the basic tax point 

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You do not have to follow the 14 day rule, but if you decide not to you must tell HMRC by writing to the VAT Written Enquiries Team.

If you wish to have an extension of the 14 day rule, then you must apply to HMRC by writing to the VAT Written Enquiries Team, giving your reasons.

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Note: Failure to tell HMRC about extending the 14 day rule will result in the tax point reverting to the basic tax point. 

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Continuous Supplies of Services

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If you supply services on a continuous basis and receive payments regularly or from time to time, there’s a tax point every time you issue a VAT invoice, or receive a payment, whichever happens first.

If payments are due to be made at regular intervals (for example, by banker’s order or direct debit), you can issue a VAT invoice at the start of any period of up to one year (provided that more than one payment is due in the period) to cover all the payments due in that period.

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For each payment you should set out the:

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• VAT-exclusive amount

• Date on which the payment is due

• Rate of VAT

• VAT payable

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If you decide to do this, you do not have to account for tax on any payment until the date on which it is due, or date you receive it, whichever happens first.

Your customer must not reclaim, as input tax, any VAT shown on the VAT invoice until the date on which the payment is due, or you have received the payment, whichever happens first.

The same procedures apply to continuous supplies of goods, in the form of water, gas and electricity.

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Goods supplied on sale or return, approval or similar terms

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When you supply goods on sale or return, for example, they have not been sold and you still own them until such time as they’re adopted by your customer. Adoption means that the customer indicates a wish to keep them. Until your customer does so, your customer has an unqualified right to return them at any time, unless you have agreed a time limit.

You may have fixed a time limit of adoption of less than 12 months from the date when the goods were sent.

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If a time limit has:

• Been fixed for a period of 12 months or less, then the Basic Tax Point is the date the time limit expires

• Not been fixed or fixed for a period of more than 12 months, then the Basic Tax Point is 12 months from the date when the goods were sent

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Note: In either case if your customer adopts the goods before the time limit expires the date of adoption becomes the basic tax point. Also the basis tax point as mentioned above will be overridden by the actual tax point

on the date an invoice issued by the business providing the goods or the date payment is received for the goods, which ever is earlier. 

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If you receive a payment which is not returnable, this will normally indicate that the goods have been adopted. The payment of a deposit required as a condition of delivery — which is repayable if the goods are returned — does not constitute adoption.

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Finally, It is a businesses responsibility to make sure that its customers notify them promptly when they have adopted goods.

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Goods taken for personal or other non-business use

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Goods that are taken out of a business:

• Permanently for non-business use will have a basic tax point on the date when the goods are taken or set aside for this purpose

• Temporarily for non-business use, but they’re still part of its stock or business assets, then a tax point is triggered each time they’re used or — if the non-business use continues over a period of time — on the last day of each tax period that the goods are used or made available for that purpose

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What Details are Required on an Invoice

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• A sequential number based on one or more series which uniquely identifies the document

• The time of the supply (tax point)

• The date of issue of the document (where different to the time of supply)

• Your name, address and VAT registration number — you may issue invoices under a trading name, but you must show the name and address under which you’re registered for VAT somewhere on the document

• The name and address of the person to whom the goods or services have been supplied (your customer)

• A description sufficient to identify the goods or services supplied

• For each description, the quantity of the goods or the extent of the services, the rate of VAT, and the amount payable excluding VAT — this can be expressed in any currency

• The gross total amount payable, excluding VAT — this can be expressed in any currency

• The rate of any cash discount offered

• The total amount of VAT chargeable — this must be expressed in sterling

• The unit price

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​Invoicing in a foreign currency

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For VAT Invoices issued in a foreign currency for supplies of goods or services that take place in the UK, the total amount of VAT payable must be converted into sterling.

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This must be done on the following basis:

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(a) unless you have adopted one of the alternatives set out in (b) or (c), you must use the UK market selling rate at the time of the supply — the rates published in national newspapers will be acceptable as evidence of the rates at the relevant time

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(b) as an alternative, you may use the period rate of exchange published by HMRC for customs purposes — the VAT general enquiries helpline can give you details of particular period rates, you may adopt this alternative for all your supplies or for all supplies of a particular class or description — if you opt for only a particular class or description, you should make a note of the details in your records at the time of adoption

You do not need to notify HMRC in advance if you wish to adopt this alternative, but having made such an option, you cannot then change it without first getting agreement by writing to the VAT Written Enquiries Team

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(c) you may apply in writing to the VAT Written Enquiries Team to use a rate — or method of determining a rate — which you use for commercial purposes but which is not covered by (a) or (b)

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In considering whether to allow such applications, HMRC will take into account:

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• Whether the proposed rate or method is determined by reference to the UK currency market

• Whether it is objectively verifiable

• The frequency with which it’s proposed to update it (forward rates or methods deriving from forward rates are not acceptable)

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Whatever rate or method you adopt, the appropriate rate for any supply is that current at the time of the supply.

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Credit Notes

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Where businesses need to correct mistakes or make changes to the amounts charged on VAT invoices already issued to customers, they can do this by raising a credit note. This will have the effect of either decreasing or simply cancelling the values on a invoice previously issued to a customer. 

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To raise a credit note and for it to be valid, the following conditions must be met :

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• Reflect a genuine mistake or overcharge or an agreed reduction in the value of the supply, and be issued within 14 days of the refund payment being made to the customer

• Give value to the customer, that is, represent a genuine entitlement (or claim) on the part of the customer for the amount overcharged either to be refunded or offset against the value of future supplies

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Details Required on a Credit Note

 

• The identifying number and date of issue

• The name, address and registration number of the supplier

• The name and address of the customer

• A description which identifies the goods or services for which credit is being claimed or allowed

• The quantity and amount for each description

• The total amount credited, excluding VAT

• The rate and amount of VAT credited (expressed in sterling)

• The number and date of the original VAT invoice or invoices relating to the supply — if you cannot do this (for example, because returned goods cannot be identified with a particular invoice), you must be able to satisfy HMRC by other means that you accounted for VAT on the original supply

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Credit Notes Issued Without VAT Adjustment

 

If credit notes are issued without a VAT adjustment, they should state ‘This is not a credit note for VAT’. Even if you and your customer decides not to adjust the VAT on credit notes which pass between you, you will still need to adjust your records of outputs and inputs in order to complete your VAT Return.

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Debit Notes

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Where businesses need to correct mistakes or make changes to increase amounts charged on VAT invoices already issued to customers, they can do this by raising a debit note. This will have the effect of either increasing or simply cancelling the values on a invoice previously issued to a customer. 

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To raise a debit note and for it to be valid, the following conditions must be met :

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• Reflect a genuine mistake or undercharge or an agreed increase in the value of the supply, and be issued within 14 days of the increase being agreed between the supplier and the customer

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Details Required on a Debit Note

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• Identifying number and date of issue

• Name, address and registration number of the supplier

• Name and address of the customer

• Identifying number and date of issue of the VAT invoice or invoices relating to the supply for which there is an increase in price

• A description sufficient to identify the goods or services supplied to which the increase in price applies

• The amount of the increase in price, excluding VAT

• The rate and the amount of VAT debited (expressed in sterling)

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Note: Credits for zero-rated or exempt supplies included in a credit or debit note must be totaled separately and the note must show clearly that no VAT credit has been allowed for them.

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Electronic Invoicing

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As the Global Financial System continues to become more integrated and digitalised, many companies are adopting to invoice their clients electronically.  From a HMRC perspective, Electronic invoicing is acceptable provided the invoices continue to meet the same invoicing requirements as manual invoices. Companies do not have to inform HMRC that they intend to start issuing electronic invoices but must adhere to the same rules as manual / physical invoicing. 

 

Electronic Invoicing is basically the generation, storage and transmission of invoices electronically without the need for paper invoices.  This has the benefit of improving a transactions audit trail, reducing storage space, speedy retrieval and better security etc. 

 

Conditions For Electronic Invoicing

 

You can find out more about the HMRC conditions for electronic Invoicing and storage in the following HMRC Notice. 

 

Electronic invoicing (VAT Notice 700/63)   

 

  

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-Contains public sector information licensed under the Open Government Licence v3.0.

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