VAT Information Sheet 16/03 November 2003 VAT Invoicing Changes This Information Sheet explains the changes to VAT invoicing from 1 January 2004. Contents 1. Introduction 2. Summary of changes 3. VAT Invoice details 4. Self-billing 5. Electronic Invoicing 6. Electronic storage of VAT invoices 7. Further information 1. Introduction 1.1 What is this Information Sheet about? It explains changes to VAT invoicing from 1 January 2004 following implementation of the EC VAT Invoicing Directive (2001/115/EC) in the UK. 1.2 Who does this affect? There are minor invoicing changes that will affect all VAT registered businesses who have to issue VAT invoices to their customers. The changes will also affect those businesses wishing to use self-billing or electronic invoicing.
2. Summary of changes 2.1 What are the changes to VAT Invoicing? The changes are as follows: Minor changes to the contents of a VAT invoice as listed in Regulation 14, to add unit price and remove the type of supply and some sterling requirements. Conditions for self-billing to be placed in Regulations and a Notice. Conditions for electronic transmission and storage of invoices to be placed in Regulations. Translation of invoices into English. 2.2 What is the new law on VAT invoicing? The EC VAT Invoicing Directive (2001/115/EC) amends Article 22 of the EC Sixth VAT Directive. The Directive has been implemented into UK law by section 24 of the Finance Act 2002. More detailed rules will be made by amendments to VAT Regulations which are due to come into force on 1 January 2004. Those regulations are subject to scrutiny and approval by Parliament, but to help businesses prepare and to address concerns about the changes, we have published this early information sheet. This is available on our Internet website at www.hmce.gov.uk. If necessary a further information sheet will be published when the regulations have been made. 2.3 Why are changes being made to VAT invoicing? The European Council agreed a new Directive on VAT Invoicing in December 2001 and this must be implemented in Member States by 1st January 2004. The aim of the new Directive is to simplify and harmonise the rules on VAT invoicing across the European Union and remove barriers to electronic transmission and storage of invoices. 2.4 When do I have to change my invoicing? The new law comes into force on 1 January 2004. However, we recognise that businesses will need time to understand and make the changes and will adopt a light touch during 2004. This will give businesses time to switch over to the new procedures and help minimise the cost of change.
3. VAT Invoice details 3.1 What are the changes to the information that must be shown on a VAT invoice? Businesses will no longer have to show the type of supply or the amount of VAT charged at each rate, but they can continue to include this detail in their invoices if they want to. They will have to show the unit price, which, although normal commercial practice, is not currently mandatory. Also VAT exclusive amounts may be shown in any currency, provided that the total amount of VAT charged on an invoice continues to be shown in sterling. All other mandatory data elements remain the same as now. 3.2 What does unit price mean? The requirement to include unit price on an invoice applies to countable goods or services. For services the countable element might be, for example, an hourly rate or a price for standard services. If the supply cannot be broken down into countable elements, then the total tax exclusive price will be the unit price. Additionally, the 'unit price' may not need to be shown at all if it is not normally provided in a particular business sector and is not required by the customer. 3.3 Will the changes lead to wastage of pre-printed invoices? Only one extra item will need to be added to VAT invoices (the unit price ) and businesses can still choose to show those items that are no longer mandatory if they wish to. There should therefore be no need for pre-printed VAT invoice forms to be wasted. The 12 month transitional period will enable businesses to use up old stocks and build in any changes to their new invoices. 3.4 Will there be any changes to credit note or authenticated receipt documentation? Authenticated receipts will need to show the new details required on VAT invoices, as will any credit notes or other amending documentation issued to a person in another Member State. This is reflected in a change to Regulation 14(2). The Directive allows some of the mandatory invoice details to be left out for amending documentation relating to domestic supplies (i.e. supplies in the UK). We have therefore not made any changes to the existing rules for such credit notes in section 18 of Notice 700 The VAT Guide.
3.5 Will VAT invoices have to show the customer s VAT registration number? In the UK we have not taken up the option available in the Directive for Member States to require invoices for supplies in their territory to show the customer s VAT registration number. As now, the customer s VAT registration number will only be required on invoices provided to persons in other Member States as per Regulation 14(2)(c). 3.6 Will any of the VAT invoicing simplifications already available to UK businesses change or disappear? No. The only change will be an increase to the limit for simplified retailer s invoices in Regulation 16 to 250. Apart from this, the invoicing simplifications already available will remain as now. 3.7 Will VAT invoices have to be issued for zero rate or exempt supplies? Invoices do not currently have to be issued for these types of transactions when supplied in the UK and this will not change. As now, if such supplies are included on invoices with taxable supplies, those items must show clearly that there is no VAT payable and their values must be totalled separately (paragraph 16.5, of Notice 700 The VAT Guide refers). However, UK businesses may still have to issue VAT invoices for zero rate or exempt supplies made to customers in other Member States if those other Member States require them. These invoices should either: indicate that the supply is exempt; or refer to the relevant provision in EU or UK law. This means that information such as the description of the goods (e.g. medical supplies) or the customer (e.g. health service) will be enough to indicate that a supply is exempt for invoicing purposes.
4. Self-billing 4.1 What is self-billing? Self-billing is an established commercial practice where the customer prepares the VAT invoice in the name and on behalf of the supplier and forwards a copy to the supplier, usually with the payment. At present UK businesses who wish to self-bill must apply to us. We will issue an approval letter on an individual case basis. The letter sets out the conditions that must be met in order to self-bill. 4.2 What are the new conditions for self-billing? From 1 January 2004 businesses will no longer have to obtain our approval to self-bill and self-billing will not be restricted to supplies within the UK. However, businesses who wish to start to self-bill or continue with self-billing, will need to meet conditions set out in the VAT Regulations and in a new Notice - 700/62 Self-billing (available early in the New Year). These conditions are based on those required by the Directive and are similar to the ones set out in our current approval letters. Briefly the main conditions are: There must be an agreement in place at the outset between the supplier and the customer (for more on this, please see paragraph 4.4). Both parties must keep copies of the agreement and produce it to us on request. The agreement must authorise the customer to produce self-bills and show that the supplier will accept all self-billed invoices issued during the agreement period. The supplier must be registered for VAT throughout the agreement period and must not issue VAT invoices for supplies covered by the agreement. The self-biller must keep and maintain an up to date list of the names, addresses and VAT registration numbers of suppliers who have agreed to self-billing and this list must be made available to us on request. If a supplier s VAT registration number changes or he ceases to be registered for VAT he must tell his self-billing customer immediately. The self-biller must show the legend THE VAT SHOWN IS YOUR OUTPUT TAX DUE TO CUSTOMS & EXCISE on the self-bills. You can find further information in Notice 700/62 (available early in the New Year).
4.3 Are there any changes in the way the existing tax point rules apply to self-billed invoices? No. As now, the issue of a self-billed invoice does not create a tax point in the same way that a VAT invoice would if the supplier had issued it but there is one exception. This is where you issue a self-billed invoice within 14 days of the basic tax point as described in paragraph 14.2.2(b) of Notice 700. This will continue to create a tax point in the same way as a normal VAT invoice would. 4.4 I am already self-billing do I have to do anything? You must check that you have a self-billing agreement in place with your suppliers and that you can meet all the conditions for self-billing in Notice 700/62 Self-billing (available early in the New Year). There is a summary at paragraph 4.2. If your agreement does not meet the requirements you may need to amend it or set up a new self-billing agreement. This also applies to commercial contracts that include self-billing provisions. We recognise that it will take time to review all existing agreements with suppliers. We will adopt a light touch during 2004 and will not refuse selfbilling to anybody approved by us under the former procedures. You should use this breathing space to make sure your existing agreements are compliant with the new rules before the end of 2004.
5. Electronic Invoicing 5.1 What methods of electronic invoicing can I use? The Invoicing Directive allows for electronic invoicing using an advanced electronic signature, or Electronic Data Interchange (EDI). All Member States must accept these two methods. Member States can also accept other means of e-invoicing for supplies on their territory, and the UK will do this. 5.2 What are advanced electronic signatures and Electronic Data Interchange (EDI)? Electronic signatures are linked to the data to which they relate in such a way as to allow someone receiving the data over an electronic network to determine the authenticity of the origin of the data, and to check that the data has not been altered or corrupted during transmission. EDI is a computer-to-computer exchange of structured data that permits automatic processing by the recipient. It is more commonly used for highvolume data transfers between businesses, using agreed standards (for example, UN/EDIFACT) to structure the data. 5.3 Apart from EDI (Electronic Data Interchange) and advanced electronic signature what other forms of electronic invoicing will the UK allow? It is difficult to give a definitive list as new technologies are constantly emerging. We are keen to facilitate the development of electronic invoicing systems and criteria for e-invoicing will be set out in a new Notice - 700/63 Electronic invoicing (available early in the New Year). Providing that a particular invoicing system meets these criteria it can be used to transmit VAT invoices. Examples of allowable systems are: Internet based systems (including EDI via Internet) such as: (a) (b) (c) XML/XSL (extensible Mark-up/Style-sheet Language) messages, transmitted using http (hyper text transfer protocol); EDI files sent under FTP (File Transfer Protocol) or as attachments to e-mail; Free format or structured text messages sent by Internet e-mail. Intermediary service providers. Such services are capable of receiving messages in a wide variety of electronic standards (e.g. EDI, XML/XSL, CSV [comma separated variables] etc) that are most convenient to suppliers, undertaking intermediary translation, then passing them on to customers in a different format (as required by the customer). Usually these are Internet-based, and run on
secured websites that are access controlled (I/Ds and password). Provision is made for both message encryption and electronic signatures, if users so require. Bill presentment. Where invoices are presented on web sites, hosted either by suppliers or their agents. Customers simply access these websites to view their invoices. 5.4 Will I have to notify Customs that I am invoicing electronically? Yes, you must tell us within 30 days from the date that you start to invoice electronically. However, if we have already given our approval for you to invoice electronically, you do not need to notify us again. 5.5 Will UK businesses still be able to send invoices by e-mail, fax, or by posting them on a web site without any signature requirements? Yes, for UK domestic transactions we will continue to allow unsigned fax and e-mail invoices as now. We have allowed and will continue to allow, posting of invoices to a website as a trade facilitation measure. This is subject to acceptable assurances on the authenticity and integrity of the data as outlined in Notice 700/63 Electronic invoicing (available early in the New Year). In some circumstances we may need to insist on the use of electronic signatures on a case-by-case basis for web posting of invoices. 5.6 Do the changes mean that businesses have to invoice electronically from 1 January 2004 for VAT purposes? No. As now, it will be for businesses to decide whether to invoice by traditional paper methods or electronically. Indeed some businesses may use both methods for separate supplies/suppliers. 5.7 Will businesses have to offer a choice of invoicing methods to their customers? No. The changes merely enable invoices to be sent on paper or electronically. If a business is not e-enabled it may not be able to receive e-invoices. Whether E-invoicing is appropriate is a commercial matter and there is nothing in the changes to oblige you to e-invoice or make your customer accept it if they don t want to. 5.8 Where can I get more information about electronic invoicing? There is a new Notice - 700/63 Electronic Invoicing (available early in the New Year).
6. Electronic storage of VAT invoices 6.1 What are the rules on e-storage of VAT invoices? Rules on e-storage are in keeping with existing rules on record keeping and production i.e. records must be produced within a reasonable period of time either at the principal place of business or another reasonable place. Compression of data will be permitted, to allow for more efficient storage, providing that integrity and authenticity of the data can be maintained. There will be no change to the retention period for invoices, this remains at 6 years, unless we agree a shorter retention period. (See paragraph 19.2.3 of Notice 700 The VAT Guide for more information on this.)
7. Further Information 7.1 Are there any other changes I need to know about? From 1 January 2004 there will be a new requirement for invoices to be translated into English where a translation is needed for our assurance purposes. This will be on an exceptional basis and any requests will be targeted at selected invoices only. If we need a translation, this will apply to all the information required on VAT invoices as set out in Regulation 14. 7.2 What will happen to businesses that do not comply with the new provisions? The new provisions will reflect current business practices and will not present difficulties for those who comply. However, businesses who do not meet the conditions for self-billing and electronic transmission and storage of invoices, will not be able to operate those forms of invoicing. As now, any businesses who persistently breach the Regulations may be liable to a penalty. 7.3 Who can I contact for further information? If you require further information about VAT invoicing please ring the National Advice Service on 0845 010 9000. You can call between 8.00 am and 8.00 pm, Monday to Friday. If you have hearing difficulties, please ring the Textphone service on 0845 000 0200. If you would like to speak to someone in Welsh, please ring 0845 010 0300, between 8.00 am and 6.00 pm, Monday to Friday.