VAT Invoice Guide

What Is VAT?

Value Added Tax (VAT) is a consumption tax applied at each stage of the supply chain. Unlike sales tax, which is collected only at the final point of sale, VAT is collected incrementally. Businesses charge VAT on their sales and can reclaim VAT on their purchases, effectively paying tax only on the value they add.

VAT rates vary by country and product category. The EU standard rates range from 17% (Luxembourg) to 27% (Hungary). The UK standard rate is 20%. Some goods and services qualify for reduced rates or exemptions.

When Do You Need a VAT Invoice?

You must issue a VAT invoice whenever you make a taxable supply to another VAT-registered business. In many countries, you must also issue VAT invoices for business-to-consumer sales above certain thresholds. If you are VAT-registered, you are generally required to provide a VAT invoice when requested by a customer.

Required Fields on a VAT Invoice

A compliant VAT invoice must include all of the following:

• Your business name, address, and VAT registration number
• The customer's name, address, and VAT number (for B2B)
• A unique, sequential invoice number
• The invoice date and tax point (date of supply)
• Description of goods or services supplied
• Quantity and unit price excluding VAT
• The VAT rate applied to each item
• The total VAT amount charged
• The total amount including VAT
• Currency used for the transaction

Simplified VAT Invoices

For smaller transactions (under £250 in the UK, or similar thresholds in EU countries), you can issue a simplified VAT invoice. This requires fewer details — typically just your name, VAT number, date, description of goods, and the VAT-inclusive total. Simplified invoices cannot be used for intra-EU transactions.

Cross-Border VAT Invoicing

Selling across EU borders introduces the reverse charge mechanism, where the buyer accounts for VAT instead of the seller. Your invoice should state "Reverse charge applies" and include both your VAT number and the customer's VAT number. Do not charge VAT on these invoices.

For sales to non-EU countries, VAT is generally zero-rated. You still need to issue an invoice but should apply 0% VAT and keep proof of export for your records.