What is a VAT invoice, and how do you raise one? A complete guide

VAT (Value Added Tax) receipts in the UK in the 2023/2024 tax year totalled £159.75 billion, which – just after income tax and national insurance contributions – is the largest source of taxation for the government. It is no surprise, then, that the VAT invoice is one of the most popular documents in accounting, the principles of which must be well-known by any business accounting for Value Added Tax.

What does a VAT invoice look like, and what should it contain? What is the difference between an invoice and a receipt? Adequate knowledge of the specifics and rules of invoicing will help you avoid accounting errors and comply with UK HM Revenue & Customs (HMRC) requirements. This article provides you the most important information on this subject.

VAT invoice – what is it, and what does it look like?

A VAT invoice is a document that confirms the sale of goods or services subject to VAT. In the UK, such an invoice must contain all the information that complies with HMRC guidelines – only then will it have the legal validity of an invoice. According to accounting rules, an invoice is a document that represents a commercial transaction and specifies the net amount, gross price, and VAT value of the transaction in question.

The standard rate of VAT for most goods and services in the UK is 20% – some goods, such as children’s car seats and home energy, have a reduced rate of 5%, and a 0% rate covers most foodstuffs and children’s clothing, among others.

What should a VAT invoice contain? List of mandatory information

When considering what an invoice looks like, it is important to bear in mind its key elements, which are strictly defined in the legislation. What should an invoice contain as required by HMRC? Below, you will find a list of the most important information that must be included in such a document:

• name, address and VAT registration number of the supplier,
• name, surname and address of the buyer,
• the unique invoice identification number,
• the date of issue of the invoice,
• a description sufficient to verify the goods or services supplied,
• the VAT rate, the amount payable exclusive of VAT and the quantity of goods for each item,
• the date of delivery of the goods or services,
• total amount payable gross of VAT,
• the rate of the cash discount offered,
• the total amount of VAT in pounds,
• bank details.

Ensure that all information provided is complete and correct before invoicing the customer.

How do you issue a VAT invoice – paper or electronic?

Completing a VAT invoice requires precision and knowledge of tax regulations—only VAT-registered businesses can issue such a document. How do you issue an invoice to comply with UK law? 

Depending on your preference, your company can invoice either paper or electronically. E-invoicing is all about easy and quick access to orders and reducing paper documents.

Such documents are essential proof that you can deduct VAT from your own VAT liability. Invoices are very important from the legal perspective and that of your business customers—back-up copies must be kept on file for six years from the end of the tax year in which they were issued.

Essence Accounting offers comprehensive bookkeeping and consultancy services to help your business correctly issue and manage VAT invoices. Our accounting support ensures that every document is prepared correctly.

Types of VAT invoices – What are simplified, modified, and traditional invoices?

There are three basic types of invoices in UK accounting: simplified, modified, and traditional. A traditional invoice contains all the necessary information we mentioned earlier. In some cases, however, a simplified invoice can also be used to speed up the paperwork – this is the case for transactions of up to £250 (including VAT). This document should include:

• your name and address,
• your VAT registration number,
• the date of supply,
• a description of the goods or services,
• the VAT rate for each item,
• the total amount to be paid including VAT.

This type of VAT invoice is usually used by retail suppliers or for small transactions that do not require extensive documentation.

If the transaction threshold of £250 is exceeded, a simplified invoice can no longer be issued. In this case, however, you can opt for a modified invoice, which provides some convenience for accounting for large orders. The main difference between this document and a traditional invoice is that it shows the prices of the products, including VAT. Please note, however, that a modified VAT invoice can only be issued if the customer agrees to it.

What are the differences between a VAT invoice and a receipt?

Both the receipt and the invoice are documents issued in the sales process that contain valuable information for companies and customers. What is the difference between an invoice and a receipt? A receipt is a document that, like an invoice, confirms a sale but is usually issued to individual customers rather than businesses. Receipts do not contain the details required on an invoice, such as the seller’s VAT number. In the context of businesses, invoices are important because they can be used for tax purposes.

The main difference between an invoice and a receipt is also the point at which they are issued. VAT invoices are usually provided before the customer sends payment – one of their roles is to document the request for payment. A receipt acts as proof of payment, which the customer receives after the transaction has taken place.

Outsource your VAT invoice management to the professionals at Essence Accounting Ltd

The VAT invoice is not only an accounting document but also an important part of your tax returns. Whatever the scale of your business, Essence Accounting provides a comprehensive bookkeeping and VAT accounting service. Our services range from general bookkeeping to tax advice, helping your business meet all HMRC requirements. Contact us for professional help with VAT invoicing and management.