The next step

HMRC's guidance on self-billing

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Do you always need to issue a VAT invoice?

Customer not registered

You do not need to issue VAT invoices to customers who are not registered for VAT; this is because they will not claim input tax, so it is not necessary. However, if a customer requests an invoice, you are still obliged to issue it, because they may need it for other reasons, e.g. claiming VAT on building materials through HMRC’s DIY scheme for self-builders. Even if a customer is not VAT registered, you must still include the usual details on the invoice, such as your business name, address and VAT number, details of the goods or services you have supplied and the rate of VAT that applies in each case.

Tip. You are not obliged to issue an invoice if a sale is either zero-rated or exempt from VAT.

Less detailed invoices

If the total value of a sale does not exceed £250 including VAT, you can issue a simplified invoice, often described as a less detailed tax invoice or retailer invoice. You can issue these invoices to both VAT registered and unregistered customers. You must record the following details on each document:

• your business name, address and VAT number;
• the time of supply (tax point) which will usually be the date that you issue the invoice
• a description that is sufficient to identify the goods or services you have supplied
• for each different rate of VAT, you must show the total amount payable including VAT for that rate.

Trap. You cannot include any exempt supplies on a less detailed invoice, only those sales that are subject to 0%, 5% or 20% VAT.

Self-billing

In some industries, e.g. the construction and scrap metal trades, it is common practice for a customer to issue self-billed invoices on behalf of their suppliers, mainly because they know the value of, say, measured work for ongoing contracts. However, your customers can only adopt self-billing (see The next step ) if you agree to it in writing with them. Once a self-billing agreement is in place, you must not issue VAT invoices for any of these supplies. You will account for output tax based on the self-billed document issued by your customer.

Tip. You cannot mix and match documents with a customer. In other words, if a self-billing agreement is in place, it will apply to all your sales with that customer.

Trap. Even though your customer is raising an invoice on your behalf, it is still your responsibility to ensure the rate of VAT is correct, e.g. you must check that your customer has not incorrectly coded it as zero-rated.

Second hand sales of goods

Another occasion when you must not issue full VAT invoices is if you sell second hand goods that are subject to VAT with a margin scheme, e.g. antiques, cars, works of art, horses and ponies. Your invoices must include words such as “margin scheme sale - second hand goods”. You will not record any VAT amounts because the customer cannot claim input tax for any purchases of goods subject to a margin scheme. Your invoice for margin scheme sales should also include a unique stock book number that you must retain as a recordkeeping condition.

The next step: HMRC Guidance on self-billing