From January 1, 2004 new rules will be implemented that will change the way in which VAT invoices must be completed. Every business is affected ñ there will be no exceptions.

As part of a continuing drive towards EU harmonisation, member states have agreed to implement the EC Invoicing Directive (SI 2002/115/EC). This specifies those details which must be shown on invoices prepared by VAT registered businesses operating within the EU.

The implementation of this directive will mean changes in the following areas:

• Contents of VAT invoices

• Rules for electronic invoicing

• Translation of invoices.

CONTENTS OF VAT INVOICES

Most of the issues required by the new EU legislation are already specified in the existing UK VAT law (Regulation 14 to the Value Added Tax Regulations 1995 (SI1995/2518)).

However, four specific changes are required to the current invoicing formats:

1. The type of supply is no longer required;

2. VAT no longer has to be shown at each rate;

3. The unit price must be shown for supplies of both goods and services;

4. The requirement to show a sterling equivalent of the total invoice amount is removed ñ but remains for the individual supplies and for the total amount of VAT.

Customs are reasonably relaxed about the items which need to be removed (points 1, 2 and 4 above) and will allow businesses to continue to include these on UK VAT invoices. However, Customs are required to ensure that the additional item, number three above, referring to unit price, is included on future UK VAT sales invoices in order to comply with the European legislation.

This requirement applies to both goods and services ñ for goods the point is straightforward, and for services Customs expect to see some reference to “hourly rate” or “rate for the job” to address the issue.

The required components for a UK VAT invoice from January 1 are therefore as follows:

(a) Identifying number;

(b) Time of supply;

(c) Date of issue of the document;

(d) Name, address and registration number of the supplier;

(e) Name and address of the person whom to the goods or services are supplied;

(f) Requirement (type of supply) has been removed;

(g) Description sufficient to identify the goods or services supplied;

(h) For each description, quantity of goods or extent of services, and rate of VAT and amount payable, excluding VAT, expressed in sterling;

(i) Gross total amount payable, excluding VAT;

(j) Rate of any cash discount offered;

(k) Requirement which related to each separate rate of VAT charged on an invoice has been removed;

(l) Total amount of VAT chargeable, expressed in sterling.

(m) Unit price.

In addition, it is necessary to show the customer's VAT registration number on invoices provided to a VAT registered person in another member state; the supplier must show the VAT registration number, including the country code of the recipient of the goods or services.

Simplification provisions which operate in the UK in respect of less detailed tax invoices and for invoices to persons who are not registered for VAT will continue unchanged.

RULES FOR ELECTRONIC INVOICING

The concept and use of electronic invoicing has developed significantly and revised EC legislation accepts that two separate methods of electronic transmission of invoices must be approved by all member states.

These two methods are advanced electronic signatures and electronic data interchange (EDI).

Member states are allowed to accept other electronic means if they so choose.

Customs have expressed a desire to facilitate future development of invoicing by electronic means. The difficulty arises when electronic invoicing is used across borders, particularly for intra-EU sales. It is then necessary for the supplier and/or customer to ensure that the methodology proposed is acceptable in both member states.

The revenue authorities are allowed to continue requiring notification of the use of electronic invoicing at least until December 31, 2005.

Customs require businesses that commence electronic invoicing for supplies after January 1 to notify them within 30 days.

TRANSLATION OF VAT INVOICES

The EC Directive provides that: “Member States may require invoices in respect of goods supplied or services rendered in their territory and invoices received by taxable persons in their territory to be translated into their national languages”.

This requirement will be enforced in the UK on an “as and when needed” basis.

STEVE JAMES

Steve James is a senior VAT consultant at WJB Chiltern plc. He has 30 years experience in this field.