Chapter 3

Calculating VAT and issuing VAT invoices

If you’re a VAT-registered business you must add VAT to your prices. You also need to issue VAT invoices. Find out how.

A calculator on top of some VAT documents

How to add VAT to prices

There’s a very simple formula for each VAT rate. You multiply your price by 1.05 for a 5% VAT rate, by 1.20 for a 20% VAT rate, or leave the price as is for a 0% VAT rate.

Price tags displaying the equation for working out VAT

You don’t add any VAT to out-of-scope or VAT-exempt products or services that you might sell.

What are VAT invoices?

A VAT invoice tells a customer how much VAT they paid on a purchase. It’s important information because some of your customers may be able to claim that tax back. If you’re VAT registered, you must issue VAT invoices.

VAT invoice example

Here are the details you need to provide on a VAT invoice.

A VAT invoice example

VAT tax point

If you’re issuing an invoice more than two weeks after goods or services were delivered, add an extra line to your invoice saying ‘VAT tax point’ with the date of delivery next to it. This can help your business customers claim the VAT back sooner.

Disclaimer: Xero does not provide accounting, tax, business or legal advice. This guide has been provided for information purposes only. You should consult your own professional advisors for advice directly relating to your business or before taking action in relation to any of the provided content.

Guide to VAT

Making a start with VAT? Don’t worry. It’s a little extra admin, but follow our guide and you’ll soon be on top of it.

Download the guide to VAT

Get your small business tax sorted. Fill in your details to get our full VAT guide as a PDF.

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