What Is a VAT Invoice? Define its Meaning and Importance

What Is a VAT Invoice?

A VAT invoice is a type of invoice that includes the applicable value-added tax. It provides details on the products or services sold, the pricing, payment terms, any available credit accounts for clients, as well as billing and payment information. Though it is identical to a normal invoice, it contains detailed information about applicable VAT. The condition for issuing VAT invoices is that businesses should be VAT-registered.

This value added tax applies to Europe-based businesses. It is also applicable if the non-EU business serves EU clients. This tax is again taken by the EU government.

As per European Union tax laws, business professionals need to issue a VAT invoice within 15 days of the product purchase at the end of the month.

How to Apply VAT to Invoice?

1. Business Registration for EU VAT

You need to register your business in any one of the 28 EU member countries. This will assist you to obtain VAT number. You can choose the local tax authority and register online for (MOSS) Vat Mini One Stop Shop. When you have clients in multiple EU countries, this allows you to file all your VAT taxes using a single tax return.

2. Confirmation of Client Details

There is no requirement to charge VAT when you conduct B2B transactions within the EU. This is only applicable to B2C businesses. When you are running your business and serving EU-based clients, then you must ask for their VAT registration number. VAT rate varies from country to country, so you must ask for location proof from your customers.

3. Charge the Correct VAT to the Customers

No VAT charge applies to those clients who hold a valid VAT number. European-based companies fill their VAT on their own. A reverse charge mechanism applies to those businesses that have valid VAT numbers. In this system, buyers and consumers can pay the tax directly to the government.

4. Issue VAT Invoices

Certain details are only applied to value added tax invoices, and this differentiates them from a normal invoice. These details are as follows:

• Business and client details
• VAT number
• Invoice date
• Invoice number
• Applicable currency
• Clients’ VAT number
• VAT rate
• The total amount pending after VAT is included

5. Submit VAT Returns Quarterly

There is a need to submit a single VAT return quarterly. Businesses can submit their VAT returns and payments online. Additionally, they have 20 days to complete the payment from the last day of each quarter.

Your currency of value added tax return payment will be according to your local tax authority. Your business must be registered with this authority.

How Do I Create a VAT Invoice?

Creating a VAT invoice is not a big deal but you need the right approach like Moon Invoice. This billing software offers 66+ customized invoice templates. That means the approach is simple. You only need to choose the template, customize it, and fill in the details.

Also, professionals need to include the correct details regarding business, client, VAT invoice, line item details, and other details of goods or services. The invoice template will calculate the charge automatically. This will lower the case of errors and you will get a valid VAT invoice.

Why Are VAT Invoices So Valuable?

VAT invoices play a vital role in your business when you sell your VAT-applicable goods or services. It’s more than an admin task. To uncover the importance of them, read the listed points. –

Accurate Record Keeping and Auditing

Business professionals can keep and manage records of their sales of goods or services. Ultimately, these records are helpful during the financial audits.

Financial Analysis and Enabling Efficient Tax Planning

Businesses can easily forecast their tax obligations through VAT invoices. This is ultimately helpful to plan and manage their finances.

Compliance with Tax Regulations

VAT invoices help maintain compliance with tax regulations. It must include the details of the applicable VAT rate, business VAT number, and VAT amount charged.

Types of VAT Invoices and Their Purpose

VAT invoices are of three types. The purpose and requirements of each invoice are different and unique to each invoice.

1. Simplified VAT Invoice

A simplified VAT invoice is one of the most basic forms of a VAT invoice. Businesses can issue this type of invoice for up to £250 sales. Simplified VAT invoices include VAT-inclusive prices. Therefore, it is not necessary to include the net price of each product.

2. Full VAT Invoice

A full VAT invoice is a standard type of VAT invoice that includes all the required legal details. Business owners can choose and send a full VAT invoice if there is confusion about choosing which type of VAT invoice they need to issue.

3. Modified VAT Invoice

A modified VAT invoice is very similar to a full VAT invoice. It also includes the VAT-inclusive price of the service or product. Business professionals can issue modified VAT invoices when the following conditions are met –

• The item should be taxable
• It should be above £250
• Agreeable by the customer to utilize the VAT-inclusive amount.

When does a Business Professional need to Issue a VAT Invoice?

This invoice is only valid for VAT-registered businesses. If your business is VAT registered and the turnover is more than £85,000 in the UK, then you are eligible for issuing a VAT invoice. Moreover, you need to issue a VAT invoice under the following conditions:

• For goods and services subject to VAT
• For B2B transactions involving both parties that are VAT-registered
• For keeping records of all transactions
• For fulfilling customers’ requests, when they urge a VAT invoice

What Are the VAT Invoice Requirements?

VAT invoicing requirements are the following details:

Invoice Header Information

• Invoice date
• Invoice number
• Details of business
• Details of customers

Description

• Description of selling goods and services
• Quantity
• Unit price
• Total amount (without VAT)

VAT breakdown

• VAT rate
• VAT amount
• Total VAT Charged

Total Amount

• Net Total
• VAT amount
• Gross Total (including VAT)

Other Information

• Terms and conditions for the payment
• Applicable discount

What Are the Different VAT Rates in the EU?

Here is the tabular form of different VAT rates in the EU:

Last Word

So, have you got the right guide on the topic of what a VAT invoice is? Remember, VAT invoices will be an important part of your business if you are running a business in the UK or from the USA but serving international clients. They help manage records, comply with taxes, collect VAT charges, and do financial planning. So always consider this accounting document and handle it properly.

Frequently Asked Questions