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How to Create a VAT Invoice: Your Essential Guide for Small Businesses

Understanding how to create a VAT invoice is crucial for many small businesses. Whether you’ve recently launched your small business or have reached the VAT registration threshold of £90,000 per year (effective February 2025), knowing the ins and outs of VAT invoicing will enhance your operations and ensure compliance.

According to David Kindness, a Certified Public Accountant (CPA) and tax expert, “Creating a VAT invoice isn’t complicated once you understand the basics, but it can seem daunting at first. Essentially, you’re documenting a transaction while making sure all necessary information is included to comply with tax regulations.”

In this article, we will guide you through the essential elements of VAT invoicing, available tools for creation, and key information you need to know to produce compliant invoices.

Step-by-Step: How to Create a VAT Invoice

Becoming VAT registered is a significant achievement for any business. However, this status requires additional details on your invoices. Lee Murphy from The Accountancy Partnership explains, “In addition to the usual details such as your name, address, and transaction amount, you also need to include a breakdown of the VAT charged, the items it’s applied to, and the applicable rates.”

When invoicing for multiple goods or services, display each item on a separate line. This clarity allows you to show the breakdown of VAT rates and charges transparently.

Many accounting platforms simplify the invoicing process. If you prefer manual options, you can utilize a word processing tool like Microsoft Word. To help you get started, consider using our customizable template.

“Keep in mind that the Making Tax Digital initiative requires VAT registered businesses to maintain electronic records. It’s wise to invest in invoicing software or comprehensive accounting tools that incorporate invoicing functions,” advises Murphy. “Such software streamlines record-keeping and automatically updates your VAT reporting, minimizing administrative burden.”

Essentials to Include in Your VAT Invoice

According to the UK government, your VAT invoice must include the following information:

• VAT registration number
• Unique identification number
• Company name, address, and contact information
• Customer’s name and address
• A detailed breakdown of the goods/services charged, itemized
• The date the goods/services were provided
• The invoice date
• Total VAT due
• Amount owed excluding VAT
• Total VAT amount
• VAT rate charged per item (specify if any items are exempt or zero-rated)
• Any discounts applied to VAT items

Kindness emphasizes the importance of including the customer’s name, address, and VAT number if they are VAT registered. This is particularly important for international transactions, ensuring compliance for both involved parties.

For service invoices, instead of vague descriptions like “design work,” offer precise details such as “logo design” or “social media templates.” This transparency reflects professionalism and helps avoid confusion.

Types of VAT Invoices

Modified VAT Invoices

If you’re charging for retail supplies over £250, you should issue a modified VAT invoice, which includes all required information along with the total amount including VAT.

Simplified VAT Invoices

Simplified VAT invoices can be used for transactions totaling up to £250. For invoices exceeding this amount, a full or modified invoice is necessary. A simplified invoice should present all prices as VAT-inclusive, without requiring the customer’s name and address.

Additional Considerations for VAT Invoicing

When invoicing in foreign currencies, it’s essential to display the VAT due in sterling if the supply was made in the UK. Keep an English translation ready for any invoices written in a foreign language, as HMRC may request this within 30 days.

When converting VAT from foreign currency into sterling, ensure you use the UK market selling rate at the time of supply or HMRC’s applicable exchange rates.

Stay informed about any changes in VAT rates or regulations to avoid costly mistakes.

“Including a personal touch, such as a thank you note on your invoices, is not mandatory but conveys professionalism and care,” suggests Kindness. “Such details can help foster positive client relationships.”

Expert Tips for Effective VAT Invoicing

Melissa Faraday, head of finance at MediaVision, shares the following recommendations:

• Maintain a clean, professional, and easy-to-read invoice design.
• Retain copies of all invoices for tax purposes; UK VAT records should be kept for at least six years.
• Ensure compliance with VAT regulations, including registration thresholds and accurate VAT rates. If uncertain, consult a professional.
• Thoroughly review invoices for accuracy, particularly before sending them to clients.

Neglecting to include essential items on your invoice may hinder your customers’ ability to reclaim VAT, warns Catherine Heinen FCCA of TaxAssist Accountants.

“Prompt invoicing is crucial,” highlights her colleague Jo Nockels FCCA FMAAT, Head of Group Practice Capabilities at TaxAssist Accountants. “This reflects professionalism and allows for quicker payments. If your business operates in various locations, consider using mobile invoicing tools such as the QuickBooks Online app to facilitate immediate quoting and invoicing.”

Further Reading

What is the VAT threshold? – Learn about the point at which your small business must start paying VAT and discover strategies to remain under the threshold.

Tax advantages of a limited company versus sole trader – Haydn Rogan outlines the tax benefits and drawbacks associated with both business structures.

Tax planning tips for small businesses – Ralph Hearn of Wellers shares valuable insights on effective tax planning strategies, focusing on Corporation Tax, business rates, and National Insurance.