How To Correctly Invoice
As a UK business owner, you should already know that all invoices must be correct and submitted on time to HM’s Revenue & Customs. Businesses without a consistent and regular invoicing plan often face serious consequences. Lacking complete records, your business will run into trouble with HMRC because invoices show the flow of money in your business to prove you are tax compliant.
When used well, invoices help you or your customers create expectations for delivery dates, expected costs and more. Invoices are also tax documents that prove your income, useful when customers refuse to pay and you need proof of the sale, and come with special rules when dealing with foreign customers. To protect your business with correct invoicing, let’s go through these topics.
HMRC Invoice Requirements
Every business in the UK that provides goods or services to customers must create and keep records on their invoices. Note that invoices are not the same as receipts, which are not required but are often requested by some customers. Invoices may be personalized with your logo and come in a few types, starting with the Sales Invoice to show proof of a simple sale. There are also:
- Commercial Invoices to make customs payments on imported goods official
- Credit Notes when you return money from earlier invoices as in overcharged customers
- Interim Invoices for long projects with multiple payments such as construction
- Recurring Invoices for recurring goods or services like subscriptions
- Tax Invoices when making exchanges that include a VAT amount
All submitted business invoices must be correct and have a unique ID number and the date on which the invoice was created or sent. They also need the name and address of your business, information to contact you, an address to send legal documents, and information about your customer including their name and address. Finally, they will of course have information on the goods or services: descriptions, quantities, how much each cost, when they were or will be handed over, and the total cost.
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Some requirements vary by business type, such as how Sole Traders must have their full legal name and business names, while Limited Companies only need the full business name from their certificate of incorporation. If the invoice for a Limited Company has one director’s name, then all other directors must be named too.
When submitting records for HMRC, you will need to provide a VAT account, any expenses not claimed for VAT, and anything purchased or sold at exempt, reduced or 0% VAT rates. Your records must also have invoice copies sent or received, information from all exports and imports, your debit and credit notes including the original VAT invoice ID number and the total amount credited without VAT, anything is given away at no cost or used personally, and the VAT number, name and address of self-billing suppliers.
Using your VAT account, you will keep a separate record of what you charged or paid for VAT. This will be part of submitting your VAT return and claiming or paying certain taxes to HMRC. Businesses also register for the Making Tax Digital initiative as part of their VAT.
VAT Invoice Requirements
VAT-registered UK businesses must take additional steps and send in extra invoice information to comply with HMRC regulations. They must keep a copy of every invoice, even when immediately cancelled or created by accident and a record of business purchase invoices.
The extra information on VAT invoices includes:
- the VAT registration number for the business
- how much VAT added per good or service
- the costs of each item without VAT
- the total VAT amount
- the total cost for the goods/services without VAT
Additionally, if the tax point would be different between the time of supply and the invoice date, that must be mentioned as well. VAT invoices are not needed when customers use self-billing, use a VAT second-hand margin scheme, or are simply giving gifts to a charity. Also, some UK invoices on exempt or zero-rated sales do not need a VAT invoice, though you will still include the reduced rate amount on invoices for regular, reduced or 0% VAT rate goods or services.
When an invoice would be for an amount under £250, you can submit a Simplified VAT Invoice. These do not need to include the customer’s information, the date of the invoice, the total costs with and without VAT, the costs and quantity per individual good or service, and discount rates. Retail businesses do not need to give customers VAT invoices unless requested. If you do, however, sales under £250 can of course be a Simplified VAT Invoice and a copy must go into your records.
Before sending invoices to your customers, you should always agree on how they will pay and when that amount will be due. This helps you and the customer know when to expect delivery. Without prior agreement, you should expect to be paid within 30 days of sending the invoice. Overdue payments allow you to start charging interest.
Invoices should be sent when you provide the service or deliver the goods, and you’ll want to check with customers to see if they got the invoice. Most people prefer PDF invoices via email, and you should never send invoices in a file format the customer may not have software to read.
To help customers send the full payment from invoices, you should give them terms for their payment such as the due date and late penalty information. Sending multiple smaller invoices instead of one large invoice for a big project may help clients pay each in turn, as does asking for payment through online means or with a payment link. Some types of businesses even set up early payment discounts so their customers want to pay as soon as possible.
HMRC has several ways for businesses to deal with late payments. These include hiring an impartial mediator that can resolve the problem and is paid depending on the amount, making statutory demands of the customer who then has 21 days to pay the amount, or going to court. Some claims under £100,000 are handled differently, so research how to make your claim depending on the amount.
When late payments are not or cannot be provided, you can either request customer bankruptcy or liquidation. Bankruptcy involves sending a solicitor to court to argue your case, after which the court takes assets from your customer and sells them to provide you with money. Liquidation has the same result but requires you to submit a “winding up petition” to the court which proves the customer can’t pay. In either case, you are not guaranteed to get all of your money, and going to court can be expensive.
Oversees Trading Invoices
Some businesses will follow different rules when submitting VAT records, such as Tour Operator Schemes, and certain customers may request VAT invoices in foreign languages for their own records. When the VAT invoice is not in English, you must create an English version within 30 days if a VAT officer makes the request.
When you have an opportunity to trade beyond the UK or create VAT invoices for a foreign currency, and the goods or services are supplied in the UK, you must note the total VAT amount in sterling and convert any foreign currencies into sterling. This can be done with the market selling rate listed by the European Central Bank, the rate from when you supplied the goods or services, or HRMC’s monthly-adjusted rate of exchange.