By Emily Coltman FCA, Chief Accountant to FreeAgent
If you sell goods or services to customers, it’s likely that you’ll also have to invoice those customers for the work you’ve done. But what information are you actually required to include on your invoices - and is there anything you can add that can help you get paid faster?
Here are my top tips for what to include on your invoice template:
Your invoice is a document that you send out from your business, so make sure that it reflects your brand. Think logo, colours, fonts, and wording of the item descriptions and of your payment terms. For example, if the brand message you want to convey is “fun and quirky”, make sure your payment terms are not written in lawyers’ English.
There is some information that you must legally include on your invoices. If your business is a limited company or LLP, your invoices must show its Companies House registered number and address, and if you put the name of one director / member on your invoice, you must include the names of all the directors / members.
If you’re registered for VAT you must include your VAT number on your invoices, and comply with HMRC’s rules about VAT invoices. These rules include that an 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 (i.e. your) name (or trading name) and address
● the seller's VAT registration number
● the invoice date
● the time of supply (also known as the tax point)
● the customer's name (or trading name) and address
● a description sufficient to identify the goods or services supplied to the customer
● the rate of any cash discount
● the total amount of VAT charged, expressed in sterling
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
And 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 invoice. For more information, take a look at HMRC's guide.
Requirements for sole traders
If you are a sole trader and you're not registered for VAT, you’re not subject to legal requirements like these, but I would say it’s best practice to keep to the same rules as for VAT invoices, except of course that you would not charge VAT. This is to help make your invoices look ultra-professional and avoid any queries from either HMRC or your customers. In particular, if you use sequential numbering for your invoices then HMRC can easily see that you have reported all your income.
It’s important to make sure “The Price is Right!”, because otherwise you could find yourself in the very embarrassing position of either having to ask your customers for more money, or give them some back.
When you include your price in your invoice, make sure you use your most recent pricing - and don’t forget any discounts or special offers that you might have promised to all your customers or to just this particular customer.
Remember that if your business is VAT registered, HMRC say that you must include the price per unit on your invoices.
Avoid queries from customers by making the description on the invoice of what you are selling them as clear as you can. If a customer has to phone up to query an invoice, they may see this as poor service on your part, and it may also mean they take longer to pay.
Make it as easy as possible for customers to pay you. Include your bank account details on your invoices if you are taking payment from online banking or by BACS. If you send your invoices by email and use a service such as PayPal or GoCardless to collect payment from customers, include a link when you email the invoice, so that customers can pay with one click.
Remember that it’s for you to decide how quickly you want to get paid. Set your payment terms and make sure your customers keep to them!
Make sure that your invoices are clearly laid out with all the information a customer needs. Your aim is to make your customers’ lives as easy as possible, because that way they will come back and buy from you again. Remember, happy customers are more likely refer more people to you!