At some point in your small business journey, you will need to produce an invoice. An invoice itemises the goods or services you have sold to a customer and is usually a request for payment.
Most invoices are passed between companies, for example, wholesalers and shop owners. While a paid-off invoice functions as a receipt, the main idea is actually closer to a bill at a restaurant – it lets your client know how much they owe and when it should be paid.
Whether you’re working digitally or on paper, there are a few key requirements to meet. Even if you’ve been billing clients for a while, it’s a good idea to regularly review your invoice template for any missing details. This guide will cover what you need to create a polished, HMRC compliant invoice.
1. Start With a Clean, Professional Template
Working with a template rather than from scratch keeps your invoice tidy and ensures you don’t forget the most essential details. There’s no shame in using the templates included with your word processing suite, and with a little customisation, the most basic of layouts can look bespoke.
Adding your logo to the header and customising the colours and typefaces to match your brand will go a long way when it comes to looking put-together.
To start you off, try this template from Funding Invoice.
2. Clearly Mark Your Invoice
While it may seem obvious, don’t forget to include the word ‘invoice’ in plain sight. This ensures that your invoice is a legally binding document, which will pay in dividends if you ever have to chase payment through the legal system.
Declaring your document as an invoice also indicates to your client that it’s a high priority, making it more likely that you will be paid promptly.
3. Number Your Invoice
UK Government stipulates that every invoice should include a unique identification number, also known as a reference number.
It is a good idea to keep a document listing every identification number you have used, along with a short description of what is billed. This ensures that you don’t create duplicates and saves searching through paperwork in the event that a client or HMRC needs to discuss a transaction.
Many traders opt to keep things simple and number invoices as they come in – the first being #000001 and so on. For bookkeeping purposes, you might use the name of your client in conjunction with the numbers. Personally, I tend to use the initials of my client combined with the season, year and number within that time frame – for example, #TR-SPRING-19-001. The numbering system you adopt is simply a matter of preference.
4. Include Company Names and Legal Information
This means both your company’s information and the details of the company you’re invoicing.
If you are a sole trader, you will need to include:
- your legal name
- the name you are trading as
- an address where legal documents can be delivered to you
- the customer’s company name and address, including the name of your contact
If your company is a limited company, you will need to include:
- your company’s full registered name as it appears on the certificate of corporation
- your registered office address and company registration number
- contact details
- the customer’s company name and address, including a contact’s name so it reaches the right person
If you run a limited company and choose to name a director on the invoice, you will need to list every active director.
5. Describe The Goods or Services Billed
The main body of your invoice should describe each product or service billed so that your customer knows exactly what they are being charged for. The reason for this is twofold. Firstly, and most practically, you will be paid sooner if your client understands what you are billing for. Secondly, a precisely-written invoice is a very strong tool in the eyes of the law. By being specific about the transaction and matching the wording to any prior correspondence you can prove that you provided the goods or services requested at an agreed price.
If your invoice is for a service, it should be crystal clear how the price is calculated. If you are a writer, for example, you might charge per word or per hour. You should agree on these terms before beginning any work to ensure that both parties are on the same page.
Just like with a till receipt, you should also add the quantity of each item and the price.
6. Include Dates
The important dates to include in your invoice are:
- the date you provided your goods or services (the supply date)
- the date you issued the invoice
Most traders include the supply date in the description of goods and services and place the invoice date at the top, like a letter.
It’s good practice to issue an invoice within a month of the supply date, but not strictly necessary.
7. Calculate The Total Money Owed
This is the simplest part: just add up the charges to make a total and display it clearly. If VAT is applicable, list it as a separate line.
If you’ve agreed to apply any discounts, note them down on the invoice, along with the price after discount.
8. Define the Terms of Payment
If you need to be paid within a certain number of days, remind the customer by saying so on the invoice. It’s common to set a deadline of 30 days.
You should also remember to specify the method of payment. If you want to be paid directly to your bank account, you will need to include the name attached to the account, your account number and the sort code. A good invoice tells the client everything they need to process it.
9. Notes on Issuing VAT Invoices
You should use VAT invoices if you are VAT registered. These are a little more detailed than standard invoices, but the requirements are straightforward.
There are three types of VAT invoice you can issue:
- a full invoice; these are the most commonly used
- a simplified invoice for supplies under £250
- a modified invoice for retail supplies over £250
You can find more information on the types and details required on the government’s official website.
As a rule of thumb, VAT invoices require the same details listed in this guide, along with your VAT registration number and the date of supply, known as the tax point. You need to show the total VAT as a separate figure before your grand total.
If VAT is charged at more than one rate, you should show what the tax rate is for each item.
10. Keep Records
Don’t neglect to keep records of all of your transactions. HMRC requires you to hold onto invoices for six years; it’s a good idea to keep both a digital copy and a physical in case one is lost.
11. Consider Using Invoicing Software
It’s possible these days to automate your invoices and keep track of payment with dedicated invoice software. The most popular software manages your books, saves to the cloud and scales up to hundreds or thousands of transactions seamlessly. If this sounds like the option for you, Funding Invoice has a great piece outlining the best invoicing software in the UK.
12. Making Tax Digital
From April 2019, all businesses and limited companies will need to ensure they comply with HMRC’s new guidelines around Making Tax Digital (MTD), which in practice means that businesses must keep digital records of invoices, expenses, receipts and documentation (source: Quotegrab). One of the primary aims of MTD is to ensure businesses and HMRC can accurately keep track of all happenings with the business.