min read

Introduction to VAT Invoices

Basic VAT types that EU businesses deal with invoices. Standard VAT. Margin VAT. EC Sales. Reverse Charge. Zero Rate VAT.

VAT (Value Added Tax) Invoice is a document sent with sale of goods and services in which tax is applicable by law of that region. It is important to mention VAT on an invoice if applicable, because your customer may be able to claim back from the VAT as business-needs goods.

VAT rates are based on following conditions:

·        Who’s providing or Buying

·        Where its provided

·        How its sold

·        Nature of goods and services

·        Other conditions may also apply

Following are the common types of VAT which are also supported by all types of invoices in SMIELS such as sales invoice, sales estimate, purchase invoice and purchase order etc.

Types of VAT

Standard VAT:

VAT is applicable on most products and services. This is known as Standard VAT. The current standard rate in UK is 20% and some products and services can be acquired at a reduced 5% rate.

Margin VAT:

This is an option for VAT-registered businesses to charge Marginal VAT which is based on difference between buying and selling price and not the complete retail price. Marginal VAT % is usually less than standard VAT. Currently its 16.67%.

EC Sales:

European Commission Sales VAT is applicable when you sell your products and services overseas to other businesses based in EU. This is for verification of mentioned VAT. The Invoice also needs to contain:

·        VAT-registered Business Name

·        2 letter country code

·        VAT number

·        Value of goods and code(1,2,3)

·        Code 1: Goods are provided directly from you to them.

·        Code 2: The goods were sent by supplier directly to them.

·        Code 3: Scope of reverse charge.

Reverse Charge:

When you purchase from another EU state from where you’re located, then reverse charge may be applied by your supplier. You will have to make the declaration of both their purchase (input VAT) and the supplier’s sale (output VAT) in their VAT return. In this way, the two entries cancel each other from payment perspective.

Zero Rate VAT:

The products and services which are exempt from VAT are charged with zero rate VAT or 0% VAT.