VAT Invoicing Rules and Requirements

Introduction

If you're VAT registered, getting your invoices right matters. The invoices you issue must contain specific information so your customers can reclaim VAT, and the invoices you receive must meet HMRC's requirements before you can reclaim input tax. This guide explains what must appear on a VAT invoice, when you can use simplified versions, and the rules for electronic invoicing and self-billing arrangements.

What a full VAT invoice must include

When you issue a VAT invoice, it must contain specific details. These are:

An identifying number – a unique sequential number based on one or more series
The time of supply (tax point) – the date the goods are supplied, a service is completed, or you receive payment (whichever comes first)
The invoice date – when you issue or transmit the invoice
Your business details – your name, address and VAT registration number
Your customer's details – their name and address
Description of goods or services – sufficient detail to identify what was supplied (you can use product codes if both you and your customer can easily check them against full descriptions, such as in a catalogue)
Unit price – the price per item or, for services, the hourly rate or price for standard services
Quantity or extent – how many goods or how much of the service was supplied
VAT rate – the rate applied to each item
Amount payable excluding VAT – this can be expressed in any currency
Cash discount rate – if you're offering one
Total VAT chargeable – this must be shown in sterling

For cross-border supplies to the EU, you must show your VAT registration number preceded by 'GB', and if your customer is VAT registered in another country, their VAT number preceded by their country identifier.

Simplified invoices

The source material provided does not contain information about when simplified invoices can be used. Full invoice requirements are detailed above.

Electronic invoicing

Choosing electronic invoicing

You can choose whether to issue paper or electronic VAT invoices. You do not need to tell HMRC before you start issuing electronic invoices, but your system must comply with HMRC's requirements.

Electronic invoicing means transmitting and storing invoices in an electronic format without duplicate paper documents. The format can be structured (such as XML) or unstructured (such as PDF).

Requirements for electronic invoices

Electronic invoices must contain exactly the same information as paper invoices (listed above). You cannot run both paper and electronic invoicing for the same supplies or customers (a "dual system") except during a controlled trial of electronic invoicing systems. Once the trial ends, you must stop the dual system and the electronic invoice becomes the legal document for VAT purposes. If you have a specific business need to run a dual system, you must contact HMRC VAT general enquiries.

Ensuring authenticity and integrity

You may only invoice electronically where you can ensure:

Authenticity of origin – assurance of the identity of the supplier issuing the invoice
Integrity of content – that the invoice content has not been altered
Legibility – that the invoice can be easily read

You can choose any method that suits your operation. Examples include:

An advanced or qualified electronic signature (a digital signature uniquely linked to the signatory, capable of identifying them, created using means under their sole control, and linked to the data so any subsequent changes are detectable)
Electronic Data Interchange (EDI)
Business controls creating a reliable audit trail between an invoice and a supply

Your customer must also agree to receive invoices electronically.

Batching electronic invoices

When sending batches of invoices to the same customer, you can record common details once per computer file rather than on every invoice. For example, you can include the customer's full name and address on the batch header and use an abbreviated or coded version on each individual invoice.

Currency requirements

You can express invoice amounts in any currency, but you must show the total VAT amount in sterling where there is a positive rate of VAT due in the UK.

Credit notes

Electronic credit notes (or debit notes serving the same function) must contain the same details as the original invoice they refer to, plus sufficient information to identify that original invoice.

Self-billing arrangements

What is self-billing?

Self-billing is an arrangement where the customer prepares the supplier's invoice and sends a copy to the supplier with payment. Both parties must be VAT registered.

Setting up self-billing as a customer

You do not need to tell HMRC or get approval to set up a self-billing arrangement. However, you must:

Enter into a written agreement with each supplier
Review agreements at regular intervals
Keep records of each supplier who lets you self-bill them
Ensure invoices contain the right information and are correctly issued

You can self-bill suppliers based in the UK or other countries.

The self-billing agreement

You can only self-bill if your supplier agrees in writing. Without an agreement, your self-billed invoices are not valid VAT invoices and you cannot reclaim the input tax shown on them.

The formal self-billing agreement must contain:

Your supplier's agreement that you can issue invoices on their behalf
Confirmation they will not issue VAT invoices for goods or services covered by the agreement
An expiry date (usually 12 months, or when any business contract ends)
Agreement that they'll notify you if they stop being VAT registered, get a new VAT registration number, or transfer their business as a going concern
Details of any third party you intend to outsource the self-billing process to

You must show the agreement to an HMRC officer if requested.

Reviewing self-billing agreements

Self-billing agreements usually last 12 months. At the end of this period, you must review the agreement to prove your supplier still agrees to accept the self-billed invoices you issue. You must not self-bill a supplier without their written agreement. You do not normally need to review an agreement lasting less than 12 months.

Record keeping for self-billing

As the customer operating self-billing, you must keep:

Copies of agreements with your suppliers
Names, addresses and VAT registration numbers of suppliers who have agreed to self-billing

You remain responsible for these records even if you outsource self-billing to a third party. Without proper records, your self-billed invoices are not valid VAT invoices.

What self-billed invoices must include

Once you have a self-billing agreement, you must issue self-billed invoices for all transactions with that supplier during the agreement period.

Self-billed invoices must include all the details required on a full VAT invoice (listed earlier), plus your supplier's:

Name
Address
VAT registration number

All self-billed invoices must include the statement: 'The VAT shown is your output tax due to HMRC'.

Do not add VAT to self-billed invoices issued to suppliers who are not VAT registered.

Reclaiming input tax on self-billed invoices

You can only reclaim input tax shown on self-billed invoices if you meet all record keeping requirements.

When you can reclaim input tax depends on the date of supply for VAT purposes. This is normally the actual date when goods or services are provided to you. However, if you issue a self-billed invoice within 14 days of this date, the invoice date becomes the date of supply for VAT purposes. This determines which VAT return the transaction appears on and, if there's a VAT rate change, which rate applies.

If you're the supplier in a self-billing arrangement

If a customer wants to set up self-billing with you, they'll ask you to sign a self-billing agreement. For VAT purposes you must:

Sign and keep a copy of the self-billing agreement
Agree not to issue any sales invoices to that customer during the agreement period
Agree to accept the self-billing invoices your customer issues
Tell your customer immediately if you change your VAT registration number, cancel your VAT registration, or transfer your business as a going concern

The VAT figure on the self-billed invoice your customer sends you is your output tax. You must account for this to HMRC based on the date of supply, which is normally when you actually provide the goods or services. You might have to account for the VAT before you receive the self-billed invoice or payment.

You remain accountable to HMRC for output tax on supplies to your customer, so check that your customer applies the correct VAT rate on the invoices they send you.

Changes to VAT registration during self-billing

You must not issue self-billed invoices to a supplier who has changed their VAT registration number until you've prepared a new self-billing agreement.

If a supplier stops being VAT registered, you can continue to self-bill them but cannot issue them with VAT invoices. Your self-billing arrangement with that supplier is no longer covered by VAT regulations.

Sources

This article provides general guidance based on current HMRC rules. For advice specific to your situation, speak to your accountant.