When you look at the overall picture of all of your business activity, invoices may seem like a tiny fraction of what goes on. However, collecting payments for work you’ve carried out should never be side-lined. HMRC are looking for clear and accurate records of money you’re expecting to receive throughout the year. As well as HMRC, clients need your invoices to be correct in order to pay them. For limited companies there are certain things that need to be included within your invoices. Are you including them?
Back to basics
Let’s start by stating the obvious. The word ‘invoice’ needs to be on every invoice that you send. If it’s not then your invoice will be invalid which can cause serious problems for your cash flow. Another couple of basic elements that should be on invoices are the date and the invoice number. By doing this it makes it easier for HMRC to refer to your invoices. It also gives the same convenience to your clients as well as meaning they’ve got no excuse for late payments.
A lot of businesses, especially limited ones, shorten their business name for everyday use. However, on your invoices you must show your full company name. This goes for your address and registration name too. These should mirror the ones that are listed on your incorporation certificate from Companies House.
It’s mandatory to have your physical address on your invoices whether it’s your office or your personal address used if you work from home. It’s good practice to list the client name and address on there too. This is helpful for HMRC when they’re cross-referencing.
Make yourself available
As we’ve explained above, your address and registration number are mandatory. Even though there’s no mandatory requirement to include your phone number and email address, it does make it simpler for your clients and HMRC to get in touch if they need to. It also opens up opportunities to build on client relationships because they’ll feel that they’re welcome to get in touch with you. Some companies even include their social media links to encourage clients to engage in their online activities.
This isn’t mandatory, but a lot of companies will display their bank details on the invoice so that electronic payments can be made easily. This helps to speed cash flow up too.
It’s all in the detail
For each piece of work you’ve carried out you should include a reference number for it on your invoice. Common methods for this are to use a client reference number or a purchase order number. You should also include a description of the work that you’ve carried out so it makes disputes and confusions less likely.
The date of the charge
A lot of companies will be working on a retainer or a contract that includes different elements of service. In most cases it will be required to break your net request down into charges for each part of the service. Do this by separating them with the dates of delivery. It could be an invoice for a month, a quarter or a full year. The dates need to be correct.
Don’t forget quantity
For each piece of work on your invoice, as well as the unit price, you should include the quantity of units too. Total them up and show a clear sum that the client is due to pay.
If your annual turnover is above £85,000, you must apply for a VAT scheme. Although, you are able to voluntarily choose to register your business. You can read about when you should do this here. If you do this, a VAT number will need to be at the top of your invoices. Here’s the important bit – your previous price breakdown will not be valid if you don’t add the appropriate VAT calculations. Add 20% to the total and show the percentage.
Transactions that are below £250 don’t require you to show any discounts given to your customer. These will happen ‘off the record’ so to speak. Invoices for a total of £250+ mean that you are required to state any discounts given. You must list the original price and the amount that has been deducted from it.
It’s within your rights to state on your invoice that any late payments will be followed with a penalty. A standard late payment is usually defined as 30 days after the payment has been requested. Most penalties will increase the longer that the invoice is left unpaid. You must make sure you word this properly with a percentile of interest on the outstanding amount.
It’s a good idea to create a template for your invoices so that your clients recognise when they receive one from. Use your company colour scheme, logo and any mottos/taglines that you use as a business. This also instils a sense of professionalism to your clients.
To discuss your invoicing and business finances, get in touch with the ABC team today!
Call us on 01427 613613
Email us on email@example.com
Let’s Get Social!
Read our start of the year checklist for business owners here!
The pros and cons of being a Ltd company here!