Chapter 3 ; VAT documentation

1.1 VAT invoices

All business that are registered for VAT must provide evidence to VAT-registered customers of the VAT they have been charged. In order to do this they must give or send to the purchaser a VAT invoice within 30 days of the earlier of:

-Supply of the goods or services or

-receipt of the payment

1.1 How/when is evidence of VAT charged given

Supplier must give purchaser a VAT invoice within 30 days of the earlier of

-Supply of the goods or services or,

-The receipt of payment

1.1 When are VAT invoices not required

-If the purchaser is not VAT-registered

-If the supply is wholly zero-rated or exempt

-Where the seller is a retailer and it is a free sample of something that is usually subject to VAT

1.2 What is included in VAT invoice

-Identifying number which must follow a sequence

-Suppliers name and address

-Suppliers VAT registration number

-Date of issue of invoice

-Date of supply (tax point) if different from the invoice date

-Name and address of customer

-Type of supply

-Description of goods or services

-Unit price excluding vat

-Quantity

-Rate of tax payable excluding VAT for each description

-Amount of total vat chargable

1.2 What does a VAT invoice not have to include

-Customers order number

-Date of order

-Method of delivery

-Customers VAT registration

1.3 Exempt or zero rated supplies

If a business issues an invoice that incudes zero-rated or exempt supplies, then the invoice must show clearly that there is no VAT on those items and their values must be totalled separately. Alternatively, the business could issue separate invoices for zero-rated and for exempt supplies

1.6 VAT and trade or bulk buy discounts

A trader may offer a trade discount, VAT is charged on the discounted prices not the full price

1.7 VAT and prompt payment (cash or settlement) discounts

If a trader offers a discount for payment within a certain period, then vAT must be accounted for on the actual amount that the customer pays to work this they can either

-Invoice full amount and charge VAT on full amount then issue a credit note for discount plus vat or

-Invoice for full amount plus VAT but include info n invoice about discounted amount plus VAT, customer can recover the input tax actually paid claiming more than customer is entitled to is an offence

1.8 Simplified VAT invoices

If the total amount of the supply (including VAT does not exceed £250, then the business may issue a simplified invoice

1.8 Details needed on simplified invoice

-Suppliers nae and address

-Suppliers VAT registration number

-Date of supply (tax point)

-Description

-Amount payable including VAT

-VAT rate applicable

1.8 Main differences between a simplified invoice and a full invoice

-Customers name and address can be omitted

-An invoice number is not essential

-Total on the invoice included the VAT without the VAT itself being shown separately

1.8 Modified VAT invoices

Only issued on products or services with total over £250. It included the total price of the products and/or services inclusive of VAT

1.9 Retention of invoices

All businesses must keep records of:

-All sales invoices issued except copies of simplified VAT invoices for items under £250(including VAT)

-All purchase invoices for items purchased for business purchases, unless the gross value of the supply is £25 or less

2.1 Credit notes

if customer returns s good that were taxable, the supplier may issue a credit note and must label it as a credit note. Number and date of original tax invoice should also appear

2.1 If supplier issues credit note without making a Vat adjustment

The credit note must say 'this is not a credit note for VAT'

2.1 What is a supplier not allowed to use credit notes for

They cannot issue a credit note to recover VAT on bade debts i.e irrecoverable debt

2.1 Suppliers point of view on credit notes

The VAT on the credit note issued must be deducted from out VAT payable

2.1 Customers point of view on credit notes

The VAT on the credit note received must be deducted from input tax recoverable

2.2 If a customer returns good they can wait for:

-The supplier to reissue a corrected invoice or

-The supplier to issue them with a credit note or

-They can issue a debit note to their supplier

2.2 Supplier point of view on a debit note

The Vat on a debit note received from a customer must be deducted from output tax payable

2.2 Customer point of view of debit note

The VAT on a debit note issued must be deducted from their input tax recoverable

2.3 Pro-forma invoice

When a business issues a sales invoice that uncludes VAT, the VAT becomes payable to HMRC next time the business submits a return. It can cause cashflow problems if customer does not pay invoice and business has to pay VAT so they may issue a pro-forma for goods not yet supplied but is a request for payment

2.3 How VAT is delayed on pro-forma

once customer pays pro-forma the business issues a 'live' tax invoice to replace pro-forma and supplier is not required to pay VAT until 'live' tax invoice is issued

2.3 Can customer reclaim input vat on pro-forma

No, they must wait until the valid tax invoice is received

2.5 orders and delivery notes

They are ignored for VAT and cannot be used by a customer as evidence for claiming VAT on their purchases

2.6 VAT-only invoices

If a business forgot to apply VAT to a previous invoice or increase VAT they will issue a VAT only invoice. It must be entered in the VAT records and purchaser will be able to recover VAT

3.1 Change in rate of VAT

Tax point determines Vat amount, tax invoices with tax point before change must use old % and ones with on or after date must use the new %

3.2 Effect of a VAT rate change on a business

-Sales invoice produced at correct VAT rate

-Sales prices must include correct VAT

-Retail business must display correct figure

-Staff expense must reclaim correct rate

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3.3 Changing prices

If vat rate changes the current prices can be maintained and cost of VAT invoice can be absorbed (or profit the other way round)

4.1 Legislation

Main source of law on VAT is VAT act 1994

4.1 Gov.uk website

HMRC expect taxpayers to be able to answer their questions on gov.uk website. Publications include VAT guide (VAT notice 700) and information sheets, YouTube videos, Webinars

4.3 The VAT guide

HMRC issue a booklet called the VAT guide (VAT notice 700) this is the main guide to VAT rules and procedures

4.4 VAT enquires helpline

If a taxpayer cannot find the answer to their question on HMRC website they call call or email HMRC

5.1 ways of keeping up to date with vat changes

-Gov uk website

-circulars like newsletters from accountancy firms

-specialist tax journals

-CPD courses

-Networking

5.2 Changes In VAT impact on organsiation recording systems

-Staff training

-Adapting IT systems

-Purchasing new software

-Reprinting stationary

-Additional time for administrative work