Once you’ve applied to be registered for VAT it can take anything from 2 weeks to 3 months (even longer in certain cases) for you to receive confirmation of your registration and your VAT registration number.
Unless you’ve taken the (sometimes sensible) option of starting your registration on a date in the future you could have a period of 3 months or longer when you’re liable to account for VAT on all your sales but you’re not legally able to charge VAT. This obviously leaves you with a problem.
You’re not legally able to show the VAT as a separate amount on your invoice unless you’ve received confirmation of your VAT registration. HMRC’s solution is for you to issue a VAT-inclusive invoice to your customers. So instead of invoicing £100 you would invoice £117.50 ‘including VAT’. If you’ve got a close relationship with all of your customers and you can get them to agree to this in advance then this is without doubt the best option: please read on however.
Most established companies, particularly in the transport sector, will not pay VAT on an invoice unless it’s a genuine VAT invoice containing a VAT number and the VAT shown as a separate amount. You are not allowed (or able) to supply these details on your invoices until you receive confirmation of you VAT registration. If you use the HMRC approved method above (invoicing inclusive of VAT), without the prior agreement of your customer, you may well find that your customer delays payment of your entire invoice until they receive a proper VAT receipt.
The alternative method of dealing with this problem is to invoice for the normal amount, say £100 using the example above, with a clear notice on the invoice stating that you are awaiting VAT registration and a full VAT invoice showing the outstanding VAT will be issued as soon as your registration is confirmed. This avoids the delay that will almost inevitably be caused if you issue a VAT-inclusive invoice as recommended by HMRC.
Once your VAT registration is confirmed you send them an invoice for the full amount, with the VAT itemised, with a credit shown for the original amount (if that’s already been paid) and just the Vat showing as outstanding. If you’re ONLY invoicing for the outstanding VAT it can be seen as helpful (or at least ‘friendly’) to show the ‘payment due’ date as the last day of your own VAT quarter.
Remember that you can reclaim the VAT on many expenses incurred BEFORE your registration date. I’ll cover that in a future posting.