Failing to follow legal requirements could get a business suspended or fined. With that in mind, every country in the EU charges Value Added Tax(VAT). It’s important to know all you can about VAT and how to write VAT invoices.
Register for EU-VAT
Before anything, get the necessary VAT for your country. Registering in the same country as most or all of your clientele is a smart choice. This is as sales outside of the initial country would require an additional VAT number since you have to have a vat number for every place you sell to unless selling to other businesses. To avoid this, some businesses can sign up for the MOSS scheme and pay VAT returns under a single number.
Are VAT and sales tax the same thing?
Sales tax and VAT are different things. VAT is collected at the various stages of a transaction by all companies with a VAT number. Sales tax is collected at the final stage by the retailer only.
You have the VAT number, how do you now use it?
Now that you have the VAT number, you can start buying and selling goods and services within the EU. All business-related transactions will ask for your VAT number and for you to pay your VAT return. The deadline for this is on the 7th day of the 2nd month following a transaction, as per gov.uk guidelines.
Keep in mind that the following information is referring to sales in the EU inside of your base country.
- When buying and selling goods and services to other businesses
In this case, does the business making the purchase have an EU VAT number? If they do, the provider won’t charge VAT. They may only charge VAT on purchases made that facilitate the transaction. If the business purchasing goods or services doesn’t have an EU VAT number, charge for VAT at the provider’s rate.
- When selling goods and services to consumers
Below the threshold of €10,000, long-distance sales for goods may warrant a VAT charge in the consumer’s country. When you are selling a service, charge at your countries VAT rate. This changes when you sell telecom, broadcasting, or electronic services. These services are always taxed in the consumer’s country.
So we’ve covered what happens within the EU. However, what happens if the service or goods are being sold or bought from elsewhere.
- When buying goods and services from outside of the EU
When sourcing goods and/or services from outside of the EU, the customer should pay VAT. Specifically, when buying goods, you pay VAT at the point of import. On services, you pay them as regular. The VAT rate will generally be your countries rate.
- When selling goods and services outside of the EU
You don’t charge VAT when selling goods outside of the EU. However, you can still charge for the VAT you paid when getting items to customers.
When selling services, don’t charge VAT. This changes if said services are used in the EU, as the country may then decide to charge VAT. Similar to goods, you may charge VAT on what it took to give customers the service.
How to make a VAT invoice
All of this information begs the question, how do you make a VAT invoice? You want it to look professional and have all information required to make the sale. A full invoice requires:
- A unique invoice number
- Your business name and address
- The applicable VAT number
- The date
- Your client’s name and address
- A description of the goods or services
- The total – excluding VAT
- How much VAT is being charged
- The price per item
- The quantity of each item
- Any discounts per item
- How much VAT is charged per item
- The final amount – including VAT
There are other kinds of invoices named simplified and modified respectively, you can find them on the gov.uk website.
Invoice24 has made an app that simplifies the process drastically. Give it a try and make invoicing far easier in the future.