VAT Fraction and VAT Invoices

What
is meant by Input Tax and Output Tax?

Your sales are your outputs
and the VAT you charge on them is your
output
tax
.

If your customers are
registered for VAT, your outputs are their
inputs
and your output tax is their
input
tax
.

In the same way, the VAT
which other businesses charge you is your
input
tax
.

The
VAT Fraction

The
VAT fraction is a fraction that if you multiply the VAT inclusive
price by you will get the amount of vat for transactions at 20% VAT
the VAT fraction is 1/6.

For
example if you sell something for £120 (including VAT) and the VAT
rate is 20% then the amount of VAT is

£120*1/6=£20
(simplified this is £120/6=£20)

This
means the VAT exclusive price is £120-£20=£100.

If
you wish to calculate the VAT from a VAT inclusive price when the
reduced rate of 5% VAT is used the VAT fraction is 1/21

For
example if you sell something for £105 (including VAT) and the VAT
rate is 5% then the amount of VAT is

£105*1/21=£5
(simplified this is £105/21=£5)

This
means the VAT exclusive price is £105-£5=£100




What
must a VAT receipt show?

A VAT invoice must show:

  • an invoice number which is
    unique and follows on from the number of the previous invoice – if
    you spoil or cancel a serially numbered invoice, you must keep it to
    show to a VAT officer at your next VAT inspection
  • the seller’s name or trading
    name, and address
  • the seller’s VAT
    registration number
  • the invoice date
  • the time of supply (also
    known as tax point) if this is different from the invoice date
  • the customer’s name or
    trading name, and address
  • a description sufficient to
    identify the goods or services supplied to the customer
  • For each different type of
    item listed on the invoice, you must show:
  • the unit price or rate,
    excluding VAT
  • the quantity of goods or the
    extent of the services
  • the rate of VAT that applies
    to what’s being sold
  • the total amount payable,
    excluding VAT
  • the rate of any cash
    discount

the total amount of VAT
charged

If you issue a VAT invoice
that includes zero-rated or exempt goods or services, you must:

show clearly that there is
no VAT payable on those goods or services

show the total of those
values separately



If you make retail sales and
you make a sale of goods or services for £250 or less including VAT
you can issue a simplified VAT

A simplified VAT invoice only
needs to show:

  • the seller’s name and
    address
  • the seller’s VAT
    registration number
  • the time of supply (tax
    point)

a description of the goods
or services

Also, if the supply includes
items at different VAT rates then for each different VAT rate, your
simplified VAT invoice must also show:

  • the total price including
    VAT
  • the VAT rate applicable to
    the item

If you accept credit cards,
then you can create a less detailed invoice by adapting the sales
voucher you give the cardholder when you make the sale. It must show
the information described in the six bullets above

You do need to keep copies of
any less detailed invoices you issue.





Pro-forma Invoices

If you need to issue a sales
document for goods or services you haven’t supplied yet, you can
issue a ‘pro-forma’ invoice or a similar document to offer goods or
services to customers.

A pro-forma invoice is not a
VAT invoice, and you should clearly mark them with the words ‘This is
not a VAT invoice’.

If your potential customer
accepts the goods or services you’re offering them and if you
actually supply them, then you’ll need to issue a VAT invoice within
the appropriate time limit – see the section in this guide on time
limits for issuing invoices.

If you’ve been issued with a
pro-forma invoice by your supplier, you can’t use that to claim back
VAT on the purchase. You must obtain a VAT invoice from your
supplier.

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