The second phase of changes to the rules regarding the content of VAT invoices commences from 1 October 2007. Many businesses will not have to change their procedures, as they already voluntarily comply with the rules, but businesses will need to be aware of the change in the law.
In 2004 we had new invoicing regulations implemented for VAT. The new rules were a fairly comprehensive revamp of the requirements for a complete VAT invoice, including the requirement to quote unit prices on many supplies, and amending the rules for self billing and electronic invoicing.
The amended rules were introduced on a twelve month transitional period, but many businesses did not start making the changes to their invoicing programmes until towards the end of 2004 – or even early 2005, so some found it difficult to meet the deadline.
Almost no sooner than businesses have got fully up to speed with those changes, we have another round of invoicing changes. Once again, these carry a twelve month transitional period, but this time, businesses would be wise to prepare early.
The second phase of changes to the rules regarding the content of VAT invoices commences from 1 October 2007. The changes are explained in VAT Information sheet 10/07 which has been issued recently. Many businesses will not have to change their procedures, as they already voluntarily comply with the rules, but businesses will need to be aware of the change in the law.
As is normal, HMRC will not issue penalties for those breaching the new rules in the twelve months following the date of change, so businesses have at least a year to implement changes. Those making supplies under second hand margin schemes and the Tour Operators Margin Scheme will need to change their invoicing procedure, as will many businesses making cross border supplies within the EC.
The main changes to the procedures will affect businesses making cross border supplies into the EC, but the following summary illustrates the full scope of the changes.
- All invoices will be required to be sequentially numbered by law. This is the only aspect of the changes that affects every VAT registered trader, and as many already number their invoices, there will be no change. However, businesses which “restart” their invoicing sequence each financial year will now have to ensure that every single invoice has a unique number, and that number sequences are not repeated. Where businesses use separate sequences for different customers or product types this is acceptable, provided each sequence is identifiable and unique. Using customer prefixes is also fine, provided the sequencing is discernable. Any system under which invoice numbers are duplicated for whatever reason is unacceptable.
- If a business supplies goods under the second hand margin scheme this will have to be indicated on VAT invoices. The invoice may make a reference to the relevant legislation (either UK or EC) but the simplest is to put a statement on invoices such as “This invoice is for a second-hand margin scheme supply”.
- Similarly, supplies made under the Tour Operators Margin scheme will have to be identified as such from the invoices. Example statements are provided in the information sheet, but a simple statement such as “This is a Tour Operators Margin Scheme supply” will suffice.
- Cross border EC supplies will need a reference where the supply is either one which would be exempt if made in the UK, or is subject to the reverse charge arrangements. HMRC will not dictate what the statement needs to say, and indeed the requirement for such a statement is in fact determined by the recipient’s member state and the VAT rules applying there. Most businesses making intra-EC supplies which are exempt will probably include a statement such as “Exempt supply for VAT purposes” on all of their cross border supply invoices to avoid having different procedures for different member states. Reverse charge supplies will need to state “Subject to reverse charge in the country of receipt” or similar on the invoice.
- Finally, on intra-EC supplies of goods, which are therefore zero rated for VAT in the UK< a statement to this effect must be included. IN many cases, the existing invoicing procedures will suffice, but the statement might read “Intra-Community supply subject to VAT in the country of acquisition.”
There is also an FAQ section on the information sheet, and the relevant VAT Notice is being updated.