VAT on Invoices: A Comprehensive Guide for VAT Registered Businesses, VAT Thresholds, and Compliance – 01.07.2023

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Understanding VAT on Invoices:

Value Added Tax (VAT) is a consumption tax imposed on goods and services at each stage of the supply chain. As a VAT registered business, it is your responsibility to apply VAT to the taxable goods or services you provide to your customers, and this is reflected on your invoices.

  1. VAT Registration Threshold:

It’s important to note that businesses are not required to register for VAT until they reach the VAT registration threshold. The threshold is the annual turnover (excluding VAT) at which a business becomes obligated to register for VAT. However, registration is also possible on a voluntary basis, even if a business’s turnover does not reach the threshold. The VAT registration threshold in the United Kingdom is £85,000.

  1. VAT Registration Number:

When issuing invoices as a VAT registered business, prominently include your VAT registration number on each invoice. This number serves as an identifier and enables your customers to verify your VAT registration status. Additionally, ensure that the VAT registration number of your customers is accurate and included on the invoice when providing goods or services to another VAT registered business.

  1. VAT Rate and Amount:

VAT is charged at different rates based on the type of goods or services provided. In the United Kingdom, common VAT rates include the standard rate of 20%, reduced rates of 5% and 0%, and exemptions. It is crucial to identify the correct VAT rate applicable to your goods or services and clearly state it on your invoices.

To calculate the VAT amount on your invoice, multiply the taxable value by the VAT rate. For example, if you provide taxable goods or services worth £1,000 at the standard VAT rate of 20%, the VAT amount would be £200, resulting in a total invoice value of £1,200.

  1. VAT Inclusive and Exclusive Prices:

When presenting prices to your customers, you have the choice to display VAT-inclusive or VAT-exclusive amounts. VAT-inclusive prices already include the VAT amount, while VAT-exclusive prices indicate the cost before VAT is added. It is crucial to maintain consistency in your pricing approach and clearly indicate whether prices include VAT or not, ensuring transparency and avoiding confusion for your customers.

  1. Issuing Correct Invoices:

To comply with VAT regulations, your invoices must contain specific information, including:

  • Your business name, address, and contact details.
  • The invoice date and a unique invoice number.
  • The customer’s name, address, and VAT registration number (if applicable).
  • A clear description of the goods or services provided.
  • The quantity or volume of goods/services supplied.
  • The VAT rate and amount charged.
  • The total invoice amount, including VAT.


Understanding how VAT applies to invoices is vital for VAT registered businesses. It’s worth noting that businesses are not required to register for VAT unless their turnover reaches the VAT registration threshold. However, voluntary registration is possible if desired. By including your VAT registration number, correctly stating VAT rates and amounts, and issuing accurate invoices, you can ensure compliance and maintain a transparent and professional relationship with your customers.

It is advisable to stay updated with VAT regulations, and we recommend that you seek advice from an accountant before registering your business for VAT

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