Common VAT Problems

2. Getting the Paperwork Right

2.1 Proper VAT invoices must be issued for supplies to VAT-registered businesses.

• A full VAT invoice should include a unique identifying number; the supplier's name, address and VAT number; the customer's name and address; the invoice date; the tax point; the date of issue (if this is different from the tax point); the type of supply (such as sale or rent); a description of and the amount of goods or services supplied; unit price; the cash discount rate; the VAT rate; the total excluding VAT; the VAT amount and the total payable.
• VAT invoice numbers must be sequential, with no unexplained gaps.
• Duplicate invoices must be clearly marked.
• If you issue other documents (eg pro-forma invoices), which show the same details, they must clearly state 'Not a VAT invoice'.

2.2 If you make retail sales under £250 (including VAT), you can issue customers with a 'less detailed' VAT invoice.

• This must show your name; address; VAT number; the date of supply; a description of the supplies; the amount (including VAT) and the VAT rate charged.

2.3 To reclaim the input VAT paid to suppliers, VAT invoices must be retained.

• If you lose a VAT invoice, you must get a duplicate invoice from your supplier.
• If an invoice shows product codes rather than descriptions, you must also keep a copy of the supplier's product list.

2.4 If you settle an invoice on behalf of a third party, you cannot reclaim the VAT charge.

• Input VAT can only be reclaimed by the recipient of the supply.
• Consider settling the net value only. It may be worthwhile for the third party to pay the VAT portion of the invoice and then reclaim it in their own right.

2.5 Watch out for arithmetical errors.

• If you are given an invoice which does not show VAT as a separate item, confirm the items are VATable and check what you can reclaim by multiplying the amount on the invoice by 1/6, not by 20 per cent.

2.6 If you sell your business, the buyer can apply to retain your VAT registration number. However, this would make the buyer liable for any past tax overdue, so they may prefer to set up a new VAT registration.

• Unless the buyer is retaining the vendor's VAT number, the vendor must retain their VAT records. In this case, the buyer must be given full information so they can comply with their VAT duties.