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Scan Our QR Code...Charging VAT
On Invoices
How and when to Charge VAT on Invoices.Value Added Tax
Ensure Your Business Is VAT Registered.
UK law requires businesses with an annual turnover exceeding £85k or in any 12 month rolling period to be VAT registered, whilst businesses with less than £85k turnover do not have to register for VAT they can still apply to be VAT registered although it remains optional, so long as they are operating below the threshold.Transactional
VAT
VAT
Threshholds
VAT On
Multiple Items
Transactional VAT
Do I Need To Account For VAT On Each Sale?
Yes, Value Added Tax is simply a sales tax which VAT registered companies are obliged to charge for on goods and services for every transaction regardless of whether they are charging individual consumers (B2C) or other businesses (B2B). Some companies prefer to “hide” the amount of VAT they are charging on goods and services by simply displaying the price of goods/services including (Inc) VAT, whilst other companies may prefer to display the price excluding (ex) VAT. There is no set criteria and companies are completely free to choose whichever option suits them.
Different Items Can Have Different VAT Thresholds.
However, when it comes to invoicing customers VAT must clearly listed as a separate value which is usually displayed right before the TOTAL section. There are however 3 VAT thresholds – 0%, 5% and 20% - most goods and services in the UK tend to fall into the 20% category however there are certain goods i.e. maternity pads and children’s uniform for instance which command 0% and 5% VAT respectively. Therefore you if you are invoicing for an item which falls into either of these categories then you would not charge the standard 20% rate. For a list of items which fall in either of these thresholds please click here.VAT On Multiple Items
You Can't Always Just Bulk Add VAT.
If you are invoicing for multiple products and/or services which have different VAT thresholds on the same invoice then you must apply the correct VAT rate per item to ensure the Total VAT being charged is correct otherwise this could lead to accounting errors and penalties being administered. In order to work out how to structure your Invoices correctly use our Free Invoice Builder tool so you always charge the correct amount of VAT.
Calculating VAT
How Do You Calculate VAT?
Some businesses make the mistake of charging VAT before shipping/handling however this is incorrect and could lead to payment delays and discrepancies with VAT return submissions – it is therefore vital to understand how much VAT should be charged per invoice and at what point VAT should be added. Our Invoice Booster Builder can help you input the right VAT thresholds based on the basket of combined goods and services you are selling to avoid any delays in getting paid and VAT accounting confusion later down the line.When
Should I send a VAT Invoice after goods and services have been sent?
It is common practice to issue an invoice retrospectively after goods/services (the transaction) has been completed unless you are sending a proforma Invoice.Tax Points
When Do I Add VAT?
An invoice is essentially a demand for payment, however there are different criteria depending on how long it takes you to send an invoice afterwards.Each Invoice has a "tax point" i.e. the date on which VAT becomes due on a particular transaction and must be included on the VAT return in which that date falls. The tax point depends on several factors, such as:
What Is The Cash Accounting Scheme?
If an invoice is for "accounting VAT" then the tax point is the same date as the VAT invoice (using the 14 day rule) whereas if a business is "cash accounting" for VAT, the tax point is the date when the money is received. "Accounting VAT" also known as "Standard accounting" is traditional practice and is what most businesses tend to use as you simply pay VAT on the invoices you raise and not when payment has been made (cash accounting). Find out more about the Cash Accounting scheme.
With standard accounting there is a general 14 day rule which applies to most businesses. For instance, if you raise an invoice within the first 14 days of delivering goods and/or services to your business customer then you simply input the date you sent the invoice regardless of if that date falls in a new month or VAT Quarter.
For example - 31st March is your 1st Quarter end and you send a product to a customer on the 25th March but you don't invoice your customer until the 2nd April (new Quarter) - you therefore use the 2nd April as your invoice date and do not back date it to the 25th March as it falls within the 14 day rule. This invoice will then be included in the second quarterly VAT return which began on the 1st April.
Situation Example
Raising VAT After 14 Day Period...
However if a business is raising a VAT invoice 14 days after goods and/or services have been supplied to the customer then the tax point will be backdated to the day on which the goods/services were supplied even if the date on which you raise the invoice falls into a new month and/or VAT quarter.For Example Mr Smith (the bycycle maker) has to adhere to quarterly VAT submissions which fall on the:- 31st March (1st Quarter end)
- 30th June (2nd Quarter end)
- 30th September (3rd Quarter end), and
- 31st December (4th Quarter end) each year.
What Date Should I Include On My Invoice If My Customer Pays Before I Raised An Invoice?
The usual practice is to send an Invoice for goods and/or services after the transaction is completed (unless you are sending a proforma) but before your business has been paid as it is essentially a demand for payment. If a customer pays you in full before you have raised an invoice it is not ideal and essentially creates a Tax Point i.e. the date at which VAT is liable which supersedes any invoice VAT accounting schemes.
Therefore regardless of whether the invoice was issued within the "14 day rule" or after payment was made then you would need to include the "Tax Point" date on the invoice so it is filed within the correct VAT quarter. You would then need to issue a receipt for payment which is separate to a VAT Invoice.
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We help businesses retrieve late fees arising from overdue and unpaid B2B invoices and implement effective credit control measures to get you paid on time.