What Is a VAT Invoice?
Value added tax (VAT) is a consumption tax on taxable goods and services in Europe. Her Majesty's Revenue and Customs (HMRC), the governing body for VAT in the United Kingdom, requires that VAT invoices show certain details. Incorrect invoices might not only lead to substantial financial penalties for the company that issues them: they might result in VAT refunds being disallowed for the receiving party.
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Function
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A VAT invoice is given any time a VAT-registered provider supplies a taxable good or service to another VAT-registered party. The invoice shows sale details and can either be an electronic document or a paper receipt. The person receiving the VAT invoice can claim the VAT back that he paid on the purchase, as long as he has a valid receipt.
Features
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A VAT must show several key items. It must have a unique invoice number, the seller's name and address, the seller's VAT number, the invoice date and time of supply (if different from the date), the customer's name and address, and a description to identify the goods or services. Each item listed on the receipt must show the unit price, the total amount of VAT, the cash discount rate, the total amount payable, the VAT rate of the good or service being sold, and the quantity of goods or a description of how long the service was supplied for.
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When You Must Issue a VAT Receipt
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A VAT receipt must be issued to any VAT-registered customers for any standard-rated (currently 17.5 percent but set to increase to 20 percent as of Jan. 4, 2011) or reduced-rate (5 percent) goods or services. If a member of the general public asks you for a VAT receipt, you must supply one, even if that person is not a VAT-registered business.
When You Must Not Issue a VAT Receipt
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You do not need to give out VAT receipts if you are not registered for VAT, or if you supply zero-rated goods (goods taxed at a zero rate) or exempt goods like food. You do not need to give an invoice to customers if you are a retailer, if you use authenticated receipts, if you make a gift of taxable goods or services, or if you are selling goods under HMRC's Tour Operators Margin Scheme or the VAT margin scheme for secondhand goods.
Simplified VAT Invoices
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When you are selling items under £250 (including VAT), a simplified VAT invoice can be issued instead of the regular VAT receipt. A simplified invoice shows the seller's name and address, VAT registration number, time of supply, and a description of the goods or services.
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