As a new business, you may be wondering in which cases it is mandatory to issue an invoice. Industries may document their transactions in different ways, and it is not always clear when an invoice is legally required, or rather simply a common courtesy.
Invoices are legally binding documents that break down the details of a sale and are issued when the seller is requesting payment from the buyer. It is important to understand in which cases invoices are required in order to avoid accounting mistakes and penalties.
This article summarises which sales require invoices under UK law, and when it is still useful to provide an invoice, even if it is not a legal requirement.
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VAT registered businesses - Invoices are mandatory
The law states that if both you and your customer are registered for VAT, then you must issue an invoice. This is the only instance where it is mandatory to issue invoices in the UK.
If you are registered for VAT in the UK, you need to issue VAT invoices to your customers and submit monthly or quarterly VAT Returns to HMRC. It is extremely important to keep an accurate record of all of your sales and expenses to avoid large fines from HMRC.
If only one party involved in the sale is VAT registered, it is not mandatory to issue an invoice. However, it is still common practice.
In-person sales - Invoices are not mandatory
Let’s say you own a shop or a restaurant in which the customer pays immediately for the products they want. It would be time-consuming and impractical to issue a full invoice in this case. It is not required to issue invoices for in-person transactions unless you are both VAT registered businesses.
For in-person sales, you can simply offer the customer a payment receipt. However, if the customer requests an invoice, you should give them one. Requests for invoices may be common if a customer is buying a product or service on behalf of a business, or if they expect to be reimbursed by a third party. Using invoicing software helps you issue an invoice in just a few clicks.
Remote and online sales - Invoices are not mandatory but recommended
Now let’s say you own an online store in which your customer pays immediately online, but the goods or services are provided at a later date. Again, invoices are not mandatory unless both parties are VAT registered, but they are recommended so you can keep track of your sales and income, and so the customer has proof of the transaction.
Most e-commerce platforms include an invoicing feature that automatically issues invoices to the customers’ email once the payment has gone through.
B2B sales - Invoices are not mandatory but recommended
Regardless of if the sale is for goods or services, business-to-business (B2B) transaction should include an invoice outlining the details of the sale.
Although it is only mandatory if both parties are VAT-registered, many businesses who are not VAT-registered choose to issue invoices for their records, and many of your professional customers will request one.
Foreign sales - Invoices are not mandatory but recommended
Following the same logic as above, invoices are only required if you are registered for VAT in the UK, and the customer is registered for VAT in their home country. If your business is located in Northern Ireland, the reverse charge may apply for intra-EU sales so it is required to keep the invoice for VAT reporting purposes.
If you sell your products online to foreign customers, or if the customer asks for an invoice, then you should always issue one.
Summary - Do I need to issue invoices?
In the UK, invoices are only mandatory if both the seller and the buyer are VAT registered. In all other cases, it is optional whether you issue an invoice or not; however, invoicing has distinct advantages.
Issuing an invoice will help you get paid quicker, but also help you keep track of your business finances. Most business professionals would recommend issuing invoices for most sales, especially business to business transactions.
Invoicing software, like SumUp Invoices, can help you create professional invoices in less than one minute. Payment links are automatically added to your invoices so your customers can pay instantly and effortlessly online.
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