Andrew Needham looks at the circumstances when a business must issue a tax invoice to its customers and what types of invoices are required.
A VAT invoice can only be issued by a VAT registered business and must legally contain certain information, which is detailed in VAT Notice 700/21, section 5. The legislation specifies two types of VAT invoices: less detailed invoices for supplies under £250, and full VAT invoices for supplies over £250. And they are required for standard and reduced rated supplies.
Paper or electronic?
When a business issues a VAT invoice, it must keep a copy of it for six years. Businesses can issue paper or electronic invoices; it is their choice. A business does not have to apply for permission or inform HMRC if it wants to issue electronic invoices. Electronic invoicing is more convenient because it is cheaper and requires less storage space. In addition, as the invoices can be issued more quickly, it normally improves cash flow as the business gets paid more quickly.
Electronic invoices must contain the same information as paper ones. If a business sends batches of invoices to the same customer, it may record details that are common to the individual invoices once per computer file rather than once per invoice.
For example, instead of repeating the full name and address of the customer on every invoice in the batch, a business could include the full information on the batch header and use an abridged or coded version of that information within each individual invoice message.
When does a business have to issue a VAT invoice?
A VAT registered business is obliged by law to issue a VAT invoice to another VAT registered business upon request – so if a business is asked for a VAT invoice by another VAT registered business, it must provide them with one.
In order for a customer to reclaim the VAT they are charged, they have to obtain a valid VAT invoice as evidence to reclaim the input tax.
When doesn’t a business have to issue a VAT invoice?
There are a number of circumstances in which a business does not have to issue a VAT invoice. Retailers are not required to issue any document to non-VAT registered customers but they do normally produce a till receipt.
Businesses also do not have to issue VAT invoices for zero-rated or exempt supplies to UK customers – there is no VAT being charged, so the customer does not need an invoice as evidence to reclaim input tax.
Businesses selling second-hand goods under one of the second-hand margin schemes must not issue a VAT invoice to their customers even if they are VAT registered, although they could sell them the goods outside the margin scheme so that they can reclaim the VAT on the goods they purchased, in which case a VAT invoice would be required.
Businesses that have entered into a self-billing arrangement with their customers do not need to issue an invoice, as their customers do it for them. This is normally the case where smaller businesses supply services to larger ones, for example where self-employed lorry drivers are contracting to larger haulage companies.
Businesses in the construction industry often issue ‘authenticated receipts’ instead of VAT invoices and they are not required to issue VAT invoices if they use authenticated receipts.
Practical tip
VAT registered businesses are required to issue a VAT invoice to another VAT registered business, but don’t have to in other circumstances.
