VAT invoices explained for UK trades

Do you have to charge VAT at all?

Only if you are VAT registered. Registration becomes compulsory once your taxable turnover passes the current HMRC threshold in any rolling 12-month period, and you can register voluntarily below it — which is often worth it if most of your customers are VAT registered businesses and your materials bills are large.

If you are not registered, do not show a VAT line and do not put a VAT number on your paperwork. Charging "VAT" you are not registered for is a serious problem.

What a VAT invoice must show

Everything on a normal invoice, plus:

• Your VAT registration number.
• The tax point (time of supply) if it differs from the invoice date.
• The VAT rate applied to each line.
• The net total, the VAT amount and the gross total, shown separately.
• The rate and amount of any discount offered per line.

The rates you will actually meet

• 20% standard rate — most repairs, maintenance and commercial work.
• 5% reduced rate — certain residential conversions, renovations of homes empty for two years or more, and some energy-saving installations. Keep evidence on file; this is the rate HMRC queries most.
• 0% zero rate — qualifying new-build residential construction. Zero rated is not the same as exempt; you still report it.

The domestic reverse charge

For most CIS-reportable construction services supplied to another VAT-registered contractor who is not the end user, you do not charge VAT. Instead your invoice states that the reverse charge applies and the customer accounts for the VAT themselves.

Your invoice should show the VAT rate that would have applied and a note along the lines of: "Reverse charge: customer to account to HMRC for the VAT." The amount you actually collect is the net figure only.

It does not apply when you are working direct for a homeowner or other end user — that is a normal VAT invoice.

Common mistakes

• Applying 5% to the labour but 20% to the materials on the same qualifying job.
• Charging VAT to a contractor when the reverse charge should have applied.
• Rounding VAT per invoice instead of per line, then arguing over pennies.
• Forgetting VAT on a deposit — the tax point is usually when the deposit is paid.

This is general guidance, not tax advice. If a job sits near the edge of a reduced rate, check with your accountant before you invoice.