If you happen to manage a small business for which you are registered for Value added tax, then its important that whenever you supply goods or services to anyone else you must issue him or her a VAT invoice. Being a registered business enterprise, you’ll be able to reclaim Value added tax on purchases made for your company if you have a valid VAT invoice for your transaction.
A sales receipt is an important document, that is given to a customer as a written record for the services or goods provided to them. These days they could either be produced on conventional paper and mailed in the post or produced as a digital document. An invoice is usually given to the client after the conclusion of a service or following the supply of goods. An invoice generally comprises of two copies, one of which is given to the customer and the supplier retains the second copy.
Value added tax is a consumption tax assessed by the state on most goods and services and is usually worked out as a proportion of sale price invoiced by the vendor to the purchaser. It is compulsory for a Value added tax registered vendor to provide a VAT invoice to their customers. A ‘typical VAT invoice’ can be divided into 3 separate sections.
The first section of a VAT Invoice should contain the following;
- A unique invoice number.
- Business name and address of the seller.
- VAT registration number of the seller.
- Date of sale which is usually regarded as the tax point or date of transaction.
- Name of the customer or client.
The second section of a VAT invoice should contain the following;
- Description of the goods or services supplied.
- Quantity or number of items supplied.
- Unit and or sale price as applicable.
- Discount given if applicable.
- The rate of VAT applied.
The third section of a VAT return should comprise of;
- Net value amount of goods sold
- VAT charged on the sale
- Gross Amount of the Invoice.
- Here, you will also show the Payment terms and payment due date for the goods or services.
The back of an invoice can also be used to detail the terms and conditions of the sale and can normally include any special clauses applicable to the sale such as return conditions, refund policy and so on. Alternatively, you can use the back of an invoice to advertise new products and services, show special promotions or to display any other information that may be useful to the seller.
Since an invoice is a legal document, the copy invoice or what accountants like to call file copy, should be kept in a safe place where you should be able to access them should the need arises. The seller should also maintain a sales daybook in order to record the details of all invoices issued. This is important since, HMRC officers may need to see those invoices and daybooks should you ever become subject to a tax investigation. Your accountant may also require these information in other to accurately prepare the business accounts.
Seeing that VAT is a tax that is ultimately passed on to the consumer from the manufacturer or distributor, it is the right of every customer to request a VAT invoice if not automatically given one by the seller.
If, as a VAT registered business, you either fail to issue a VAT invoice when you should, or worse still, issue an inappropriate VAT invoice, you could be opening yourself up to financial penalties. Consequently, it is essential to know when you should and when you shouldn’t issue a VAT invoice. It is also important to get the information it contains right.