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VAT Information Sheet 10/07 - Changes to VAT invoicing with effect from October 2007

Article Date: 23 September 2008

VAT Information Sheet 10/07 - July 2007
Changes to VAT invoicing with effect from October 2007

 
What is this Information Sheet about?
 
It explains some changes to current VAT invoicing regulations. These include a minor change to the numbering of invoices and new rules to clarify the VAT treatment when making margin scheme supplies, supplies to business customers in the UK when the customer accounts for the VAT, and supplies to business customers in other EU countries.
 
Who does this affect?
 
While the new regulations apply to the whole of the VAT population, for most this will not require changes to their current invoicing procedures. Those most likely to be affected are:

  • Businesses using the margin scheme for second-hand goods, works of art, antiques and collectors items
  • Businesses involved in making travel related supplies that fall within the scope of the Tour Operators Margin Scheme
  • Businesses involved in intra EC supplies of goods and services
  • Businesses making supplies where the customer accounts for the VAT

When do I have to change my invoicing?
 
The new law comes into force on 1 October 2007. However, as is common with such regulations, in the first year of the new requirements HMRC will issue penalties for non compliance with the new requirements only in exceptional cases.
 
Why are changes being made to VAT invoicing?
 
The changes follow the commencement of formal infraction proceedings by the European Commission on the grounds that the UK had not fully implemented the VAT Directive. The government has now introduced regulatory changes to bring domestic legislation fully in line with EU VAT law.
 
What is the new law covering the changes to VAT invoicing?
 
The relevant law is the Value Added Tax (Amendment) (No 5) Regulations 2007, amending Regulations 13 and 14 of the Value Added Tax Regulations 1995.
 
What is the change to the way a VAT invoice is numbered?
 
Currently there is a requirement for a VAT invoice to have an identifying number. The change will require this number to be from a series that is unique and sequential. For most businesses this formal, legal change will have no impact on their current invoicing practice and the Frequently Asked Questions cover some common concerns.
 
What reference is required when the invoice involves a supply subject to a second-hand scheme?
 
You will be required to include one of three references – a reference to the relevant article in the EC Directive, a reference to the relevant UK legislation, or any other reference indicating that a second hand margin scheme has been applied. The way in which margin scheme treatment is referenced on an invoice is a matter for business and not for HMRC. The legend detailed in Notice 718, paragraph 3.7 is no longer acceptable to reference the fact that the supply is a margin scheme supply. Businesses may, if they wish, use this legend until they migrate to a new form of acceptable reference over time as they reprint invoices or upgrade software. A revised version of Notice 718 will include suggested alternative legends which may be adopted.
 
Examples of alternative legends will include:

  • 'This is a second-hand margin scheme supply'.
  • 'This invoice is for a second-hand margin scheme supply'.

Notice 718 Margin schemes for second-hand goods, works of art antiques and collectors items
 
What reference is required when the invoice involves a supply subject to the Tour Operators Margin Scheme (TOMS)?
 
You will be required to include one of three references – a reference to the relevant article in the EC Directive, a reference to the relevant UK legislation, or any other reference indicating that TOMS has been applied. Although the regulation of TOMS referencing is new, it will only affect business to business transactions, and businesses will have a wide range of choice in deciding the best way of referencing TOMS treatment. HMRC will allow affected businesses the widest possible discretion in adapting commercial or industry norms to meet the 'any other reference' requirement.
 
Examples of acceptable indications will include the following:

  • 'This is a Tour Operators Margin Scheme supply'.
  • 'This supply falls under the Value Added Tax (Tour Operators) Order 1987'.

What reference is required when the invoice involves Intra- EC Exempt or Reverse Charge Supplies?
 
For the purposes of the new regulations, an exempt supply is a supply that, if made in the UK, would be exempt under Schedule 9 of the Value Added Tax Act 1994. Where an invoice is required you will need to include one of three references – a reference to the relevant article in the EC Directive, a reference to the relevant UK legislation, or any other reference indicating that the supply is exempt, or subject to the ‘reverse charge’. The regulations make it clear that a requirement to issue invoices for exempt supplies only arises when the supply is business to business, across an EU border and an invoice is required by the Member State of receipt. Because custom and practice varies widely even in member States whose legislation ostensibly requires an invoice, you should always be guided by your customer about the need for an invoice. The way in which the intra EC exempt or reverse charge treatment is referenced on
an invoice is a matter for business and not for HMRC. Our aim is to reduce the impact of change by allowing affected businesses the widest possible discretion.
 
Suggested statements that indicate the invoiced supply to be exempt or subject to the reverse charge are included below.
 
Exempt supplies:

  • 'Exempt supply'.
  • 'Exempt supply for VAT purposes'.
  • 'This supply is exempt from VAT'.

Reverse charge supplies:

  • 'Reverse charge supply'.
  • 'This supply is subject to the reverse charge'.
  • 'Subject to reverse charge in the country of receipt'.
  • 'Subject to reverse charge in another member state'.
  • 'This is a UK exempt supply which may be chargeable in the country of receipt'.
  • 'This is a UK exempt supply which may be chargeable in another member state'.

What reference is required when the invoice involves an Intra-EC Zero Rated Supply?
 
For intra EC zero-rated supplies of goods (dispatches) you will need to include one of three references – a reference to the relevant article in the EC Directive, a reference to the relevant UK legislation, or any other indication that the supply is a zero rate intra EC supply.
The way in which the zero rate treatment is indicated on an invoice is a matter for business and not for HMRC. Our aim is to reduce the impact of change by allowing affected businesses the widest possible discretion. It is possible that, in some cases, the format and information already used on invoices is sufficient to satisfy the new rules.
 
Examples of references under the third option include:

  • 'Zero rated intra-EC supply'.
  • 'This is an intra-Community supply'.
  • 'Intra-Community supply subject to VAT in the country of acquisition'.

Further Information
 
Where can I find further information about these changes?
 
Further information in relation to the consultation can be found on the JVCC page of HMRC internet site, which includes two VAT Invoicing consultation papers explaining the legal background to these changes.
 
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 (if you are outside the UK please call +44 2920 501 261). The advice service is open Monday to Friday, 8.00am to 8.00pm. If you have hearing difficulties, please ring our Textphone service on 0845 000 0200. If you would like to speak to someone in Welsh, please call 0845 010 0300. The Welsh service is open Monday to Friday 8.00am to 6.00pm.
 
Frequently Asked Questions
 
Consecutive numbers on invoices
 
Does the invoice number series have to be numerical, or can it include letters?
 
The ‘invoice number’ can be numerical, or it can be a combination of numbers and letters, as long as it forms part of a unique and sequential series. In order to avoid the appearance of having only just started in business I do not want to start at Invoice no.1 and would prefer to commence with, say, Invoice no 1135. Is this allowed?
Yes, as long as the invoice series runs consecutively from that point.
 
I currently use a unique customer reference number as the identifying number on the invoice. If I add an additional consecutive number will this be acceptable?
Yes, this would have the affect of creating a unique and sequential series.
 
I have several customers and I wish to run several separate sequences of invoices at the same time. Is this possible?
Yes, it is acceptable to operate more than one sequence at the same time.
 
My business operates as several separate business units or divisions. Is it possible for each unit or division to operate its own sequence of invoices?
Yes, it is acceptable to operate more than one sequence at the same time.
 
What if there is a break in sequence, for example where I cancel an invoice or it is spoiled and never issued to a customer?
As long as you retain the cancelled or spoiled invoice in your accounting records, or you can provide an explanation for the break in sequence, this is acceptable.
 
Margin scheme for second-hand goods, works of art, antiques and collectors items
 
I use the margin scheme and my invoices include the legend specified in Notice 718. Besides the legal references to either EC or UK law, what wording will qualify as a ‘relevant reference’ for the purposes of the new regulations?
Under the new regulations the way in which margin scheme treatment is referenced on an invoice is a matter for business. Paragraph 2.4 above provides some examples of acceptable legends.
 
Tour Operators Margin Scheme (TOMS)

 
My business uses the Tour Operators Margin Scheme (TOMS). What reference will I now have to include on invoices that I issue under this scheme?
You will be required to include one of three references – a reference to the relevant article in the EC Directive, a reference to the relevant UK legislation, or any other reference indicating that the Tour Operators Margin Scheme has been applied. Our intention is to provide businesses with the widest possible discretion in meeting the ‘any other reference’ requirement. Paragraph 2.5 above includes some suggested references.
 
Will I have to issue an invoice for all TOMS supplies?
No. The legend is only required where you issue an invoice to other business customers.
 
Exempt, Zero Rate and Reverse Charge supplies
 
Do I have to issue an invoice for exempt supplies?
The changed approach will require a reference on the invoice when an exempt supply is made to a business customer in another Member State and an invoice is required in that Member State.
 
How will I know what the requirements are?

In practice, the requirement will only apply if a business customer in another Member State requests such an invoice, as this will indicate that the Member State in question requires an invoice for exempt supplies.
 
Where I am required to issue an invoice for an exempt supply and reference the exemption, how can I be certain of the treatment in other Member States?

You do not have to describe the treatment in the receiving Member State. You need only to explain why VAT has not been charged on your invoice. This can be done by reference to EC legislation, UK legislation or by a simple statement that the supply is exempt.
 
Is there any change to the requirement in respect of exempt supplies in the UK?
No. There is no requirement for invoices to be raised for exempt supplies made by you in the UK to a UK customer.

I make supplies to business customers in other member States and I understand that these supplies are subject to the 'reverse charge' procedure. What do I need to show on my invoice?

If this would be an exempt invoice in the UK it is sufficient to indicate that fact. You should be guided by your business customer and if they require a reference to the reverse charge procedure you can do this by reference to the EC legislation, UK legislation or you can include any other reference indicating that the supply is subject to the 'reverse charge' procedure.
 
I make supplies of Gold under the special accounting scheme. How am I affected by the changes to the VAT invoicing regulations?

Details of the scheme and your invoicing liabilities are contained in Notice 701/21, which includes details of the form of words to be used on such VAT invoices. This form of words will satisfy the new rules but you are allowed to change it if you wish providing the new form of words clearly indicates that the customer is liable to account for and pay the VAT.
 
I make business to business purchases and sales of mobile phones and computer chips, and I understand that I may be required to apply the reverse charge. How do the changes to the VAT invoicing regulations affect me?

There are special reverse charge arrangements for sales of specified goods (currently mobile phones and computer chips), where the supplies are business to business between VAT registered taxpayers in the UK. VAT Information Sheet 08/07 (VAT: Reverse charge for purchases and sales of mobile phones and computer chips) provides more details, including suggested annotations that you must include on the invoice to indicate that it is subject to a reverse charge.

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