Whilst waiting for your company to be VAT registered you cannot charge your clients for VAT. This guide provides an approach you can use to invoice your client before you have your VAT registration number.
Whilst waiting for VAT registration you can submit invoices to your clients. However, you cannot list the VAT until you get your VAT registration number. Instead, you can include the VAT within the invoice, provided it is not described as VAT.
This approach, if your customer agrees, allows you to invoice and receive payment including the sum that would be VAT, on the assumption that you will become VAT registered. This means you would not need to invoice for the VAT separately at a later date and your client will not need to process an extra payment.
The recommended method however, is to only invoice for your services excluding VAT, then send your client a VAT only invoice once you have your VAT registration number.
If you choose to apply this approach, once your have your VAT registration number, you will need to re-issue the invoices to ensure that you have applied VAT correctly.
Raising invoices whilst waiting for VAT registration
Here’s a short example:
- you’re charging a client £1,000 (ex VAT) for services you’ve provided
- whilst waiting for VAT registration you cannot apply VAT on your invoice
- instead, you charge the client £1,200 in total (£1,000 + 20% for future VAT payments)
- this is listed on your invoice as £1,200 and exempt from VAT
- your client then pays £1,200
- in the future you can re-issue the invoice for £1,000 + £200 VAT, without having to obtain a further payment from the client
The steps below explain how to invoice your client / agent for the full amount accounting for VAT, without showing VAT on the invoice.
1. Once you have set up your contract, click on Invoicing then Invoices. Next, press the New Invoice button and select your contract. If you have not created a contract you can use a Free Type Invoice.
2. Click Add invoice line then ether Billable time or Manual line and select the items you wish to invoice.
3. You then need to edit each line of your invoice to effectively include VAT. For example, if you have added hours from a timesheet, say 10 hours at £100, it will show the line total as £1,000. Click the pencil icon to the right and change the rate so it is inclusive of VAT. So a rate of £100, assuming the applicable VAT rate is 20%, would need to be changed to £120.
4. Click the green tick icon to confirm the line on your invoice and repeat for any other line items. Once complete you will have an invoice that is inflated by the amount of VAT, had it been a VAT invoice.
5. Press save then check your invoice carefully.
You will now have an invoice that effectively captures the VAT, without displaying it, that can be sent to your client / agent for full payment.
Editing and re-issuing invoices after VAT registration approved
When you receive your certificate of registration for VAT, your VAT settings can be updated by your account manager. This will allow you to edit invoices dated after your effective date to turn them into VAT invoices that can be re-issued to your client / agent.
If you have already received payments for any invoices raised using the approach in the section above, within the payment would be an amount of VAT. This means that you do not need to retrospectively invoice for the VAT.
Once you have had confirmation that your VAT settings in inniAccounts have been updated:
1. Click on Invoicing, followed by Invoices. Next, click on an invoice that needs to be reissued.
2. Click the Edit button. If it is greyed out, see the tip below.
3. Click on the pencil to the right of a line item on your invoice.
4. Change the Unit Price to remove any account of VAT, i.e. the actual rate you charge excluding VAT. In the example the rate was previous changed from £100 to £120 – this would then be changed back to £100.
5. Change the VAT rate to standard, or the applicable rate for the line item, then click the green tick icon on the right.
6. You will notice that the total value of the invoice is unchanged and the VAT is now shown separately.
7. Click Save Invoice.
You can now re-issue this invoice to your agent or client for their records.
If a transaction has been marked as confirmed in your bookkeeping, the transaction is locked to prevent editing.
To unlock the transaction, go into your bookkeeping and click on the item in your bank statement then click on Delete. You will notice that the transaction returns to the Pending Payment section at the bottom of the screen which means you can now edit the invoice.
Don’t forget that once you have finished editing you need to return to your bookkeeping and reconfirm the items to ensure your balances in inniAccounts and your Bank Statement match.
Updating transactions in Quick Entry and Bookkeeping
Any personally incurred expenses in the Quick Entry area, or transactions entered into your books prior to your company settings being configured as VAT registered would not have prompted you for any details on the VAT rates. Now that you are registered these transactions must checked and updated.
In the Quick Entry area and the Bookkeeping area, you will need to work through all your transactions dated after your effective date:
- Click on a transaction to see the detail, you will notice that the VAT rate is Exempt (0%). If this is not the correct rate for the transaction it needs to be edited.
- Click the Edit button and change the VAT percentage in the pull down menu. Note that you do not need to change the amount as that is the Gross amount on your receipt.
- Click Save and repeat for all other transactions.
I have recently started working in Northern Ireland moved from Spain. I have been taking a look to the page of the government regards information available for self employment. I’m going to start as tender giving services to a council (I assume VAT registered) and a NGO exempt of VAT.
I see that if my annual income is not over 85.000 is not an obligation to be VAT registered. I’m for sure not going to overcome this amount in the period.
I have submit invoices to the organization without problem, without charging VAT. My doubt is with the council, its quotations are excluding VAT, may I charge a 20% to this price even without having VAT registration number, or just leave the price for the services excluded of VAT?
Many Thanks
You cannot charge VAT if you are not VAT registered, even if your customer is. You will invoice both of your customers in the same way without adding VAT.
Hi
I have completed work for a client based on a quote I gave them without adding VAT, as I was not then registered. The bill is due for payment and in that time period I was registered and now have a VAT number. Do I pay the VAT on the amount due or do I simply accept the payment due and record it in my books as not VAT registered?
Hi Sally,
When the work was billed/paid for (whichever happens first) is the date for tax purposes. If this date was after you registered for VAT then you will need to pay VAT over to HMRC at 1/6th of the invoice/amount received. If your quote specified that amounts are VAT exclusive you can charge VAT to your customer on the invoice.
Generally speaking, if your client is a VAT registered business then they can usually recover any VAT you charge them.
Excellent write-up. I absolutely love this site. Stick with it!
Thanks Jim!
Hello,
Great site!
My question is similar to Sally’s but I still need some clarification. Last week I have just gone over the threshold. I have about 10 clients than have booked our services for events that are happening over the summer. They have paid a small deposit but the rest has not been invoiced. None of them are businesses so will definitely not like a 20% increase on top of what I originally quoted. If I register for VAT tomorrow (1st Feb) and my effective date will be 1 st March can I invoice all these clients before the 1st March without VAT? Or because I have registered but not received my VAT number do I still need to add on VAT?
I can wait to register for another 30 days and invoice them before registration which I guess will be at 0% VAT. Can I put on a longer payment term of say 3 months? as some of the events are not till later in the year.
Thank you.
Hi Kath
When receiving deposits in advance for future services the tax point in terms of VAT is the date the advanced payment was received. As such it is at this point you should consider if you are required to register for VAT due to exceeding the threshold.
When a customer pays any remaining balance it is the date the payment of the balance is received that is considered the tax point for VAT.
If you are required to register as turnover has only exceeded the £85,000 temporarily then you may request an exemption from registration by contacting HMRC.
If you are required to register for VAT and can not get any temporary exemption then from your effective date of registration you will need to charge the right amount of VAT.
Once you are required to raise VAT invoices it will be either the earlier of the invoice being generated or the payments received that results in the tax point for VAT.
I had a lot of work done by someone who was not registered for VAT. Their quotes did not mention VAT. I paid several invoices totalling about £7000.00. I have just had a new bill saying they have registered for VAT and they want to charge me VAT on the invoices I already paid. So they want another 20%.
Also there is not a VAT number on the invoice asking for VAT on the amount I paid previously.
Can they charge me VAT retrospectively ,when no mention of VAT has been made until now?
Thanks,
Roy
Hi Roy,
Companies can be in the process of registering for VAT and then once their VAT registration date has been approved they can raise VAT only invoices in relation to invoices raised since the registration date but prior to them having a VAT number to put on their invoices.
Any VAT only invoice should show the VAT number to be valid. If you have concerns you can request the company supply you a copy of their VAT certificate as this will show their effective date of registration. If your original invoices received are prior to the registration date you should not have received a VAT invoice.
If you are VAT registered then any VAT you are charged will be recoverable from HMRC as long as your supplier has provided an invoice showing their VAT registration number.