VAT and invoicing in the United Kingdom (2026)

VAT is the tax most UK small businesses deal with every week: you add it to your sales, reclaim it on your business costs, and send HMRC the difference every quarter. This guide explains, for a small business owner, which rate to charge, when you must register, how returns and payments work under Making Tax Digital, what a valid VAT invoice must contain, how to correct one, and what the move to mandatory e-invoicing in 2029 will change. Figures and dates are as of October 2026.

UK VAT at a glance

Value Added Tax (VAT) is collected by HM Revenue & Customs (HMRC). There are three rates, and some supplies are exempt (outside the VAT system altogether) rather than zero-rated.

The difference between zero-rated and exempt matters: on zero-rated sales you charge 0% but can still reclaim the VAT on your costs, while exempt sales do not let you reclaim the related input VAT.

Northern Ireland still follows EU VAT rules for goods under the Windsor Framework. Businesses trading goods between Northern Ireland and the EU use the prefix XI before their VAT number instead of GB.

When you must register for VAT

Deadlines: if you went over £90,000 in the past 12 months, you must register within 30 days of the end of the month in which you went over, and you are registered from the first day of the second month after that. For example, if you went over on 15 July, you register by 30 August and charge VAT from 1 September. If you expect to go over in the next 30 days, you register by the end of that 30-day period.

Your VAT number has nine digits. It is written with the prefix GB on invoices to customers abroad (or XI in Northern Ireland, as above). Before invoicing a business customer, check their number with HMRC's UK VAT number checker: a format check alone does not prove that a number is valid.

Schemes for smaller businesses

VAT returns and payment

• Frequency: you usually file a VAT return every 3 months (your accounting period), even when you have nothing to pay or reclaim.
• Deadline: the return is due one calendar month and 7 days after the end of the period, and so is the payment. A quarter ending on 30 September is due by 7 November. The deadline does not move when it falls on a weekend or a bank holiday, so allow time for the payment to clear.
• Making Tax Digital (MTD): all VAT-registered businesses are signed up to MTD for VAT. You keep digital records and file through compatible software.
• Annual accounting: under the Annual Accounting Scheme you file one return a year and pay in instalments.

If you pay late, HMRC charges penalties and interest:

Sole traders and landlords also have a separate digital duty for Income Tax: Making Tax Digital for Income Tax has applied since 6 April 2026 to qualifying income over £50,000, and will apply from April 2027 above £30,000 and from April 2028 above £20,000.

What a VAT invoice must show

When you sell standard- or reduced-rated goods or services to another VAT-registered business, you must give them a VAT invoice, normally within 30 days of the supply. HMRC sets out the rules in VAT Notice 700 (section 16) and VAT Notice 700/21 (section 4). A full VAT invoice shows:

Simplified and modified invoices

• £250 or less including VAT: you may issue a simplified invoice showing your name, address and VAT number, the time of supply, a description of the goods or services, and the total payable including VAT for each VAT rate. It must not include exempt supplies.
• Over £250: you must issue a full VAT invoice or a modified invoice, which shows VAT-inclusive rather than VAT-exclusive values.
• Retailers do not have to issue a VAT invoice to customers who are not VAT-registered unless they ask for one.

Invoices in another currency

You may show the line amounts and the totals in any currency, but the total VAT must be in sterling. Convert it at the UK market selling rate at the time of supply, at HMRC's period rate of exchange, or by a method HMRC has agreed with you.

Credit notes: how to correct an invoice

Never edit or delete an invoice you have already sent. To reduce the amount, issue a credit note. It is valid for VAT when it corrects a genuine mistake or overcharge, or gives an agreed reduction, and gives your customer a real right to the amount, as a refund or an offset. It shows its own number and date, your and your customer's details, a description, the quantity and amount credited, the VAT credited in sterling, and the number and date of the original invoice. A credit note that does not adjust VAT must say so.

How long to keep records

Keep your VAT records for at least 6 years. You generally have 4 years from the return's due date to claim input VAT you missed.

E-invoicing: mandatory from 2029

Today the UK has no e-invoicing mandate for private businesses: a PDF or paper invoice is a valid VAT invoice, and you may use electronic invoices if you wish (HMRC explains the rules in VAT Notice 700/63). Suppliers to NHS England already have to send e-invoices through the Peppol network. That is changing:

An e-invoice is a structured data file that the customer's software reads automatically, not a PDF sent by email. When the mandate applies to you, you will need an e-invoicing solution that can send and receive invoices over Peppol for that part.

A worked example in pounds

A small design studio invoices £2,500 plus 20% VAT for a website: £500 VAT, so the customer pays £3,000.

Over the quarter from July to September:

The return and the payment of £5,580 are due by 7 November. To find the VAT inside a price that includes 20% VAT, divide by 6 (the VAT fraction is 20/120): £1,200 ÷ 6 = £200 VAT and £1,000 net.

When your customers pay late

The Late Payment of Commercial Debts (Interest) Act 1998 protects you in business-to-business sales:

• If you agreed no payment date, payment is late 30 days after the customer receives the invoice, or after you deliver the goods or service if that is later. Agreed payment terms must usually be within 60 days for business transactions (30 days for public authorities), unless longer terms are fair to both sides.
• You can claim statutory interest of 8% plus the Bank of England base rate, unless your contract sets another rate. With the base rate at 3.75% (held at the 17 September 2026 decision), that is 11.75% a year.
• You can also claim fixed debt recovery costs once per invoice: £40 for debts up to £999.99, £70 from £1,000 to £9,999.99 and £100 from £10,000.

A Commercial Payments Bill, introduced in Parliament on 19 May 2026, would cap payment terms at 60 days in most cases (30 days for public authorities), make the right to statutory interest impossible to contract out of, and set a deadline for disputing invoices. Until it is passed and comes into force, the current rules above apply. Our guide on getting paid faster covers the practical side.

Common VAT mistakes

1. 1Checking the threshold only at year end. The test is a rolling 12 months, so look at your turnover at the end of every month.
2. 2Treating exempt sales as zero-rated (or the other way round), which changes how much input VAT you can reclaim.
3. 3Using the wrong rate, for example 5% on something that is standard-rated. Check the exact product, not just the category.
4. 4Missing details on the invoice, such as the customer's address or the VAT rate per line, so the customer cannot reclaim the VAT and holds back payment.
5. 5Showing the VAT total in euros or dollars only. The VAT must always appear in sterling.
6. 6Editing a sent invoice instead of issuing a credit note.
7. 7Paying on the deadline by a slow method, so the money clears late and the penalty clock starts.

How Clientlly helps

Clientlly keeps your invoicing and your books in one place:

• sequential invoice numbering per series, with the UK VAT rates on every invoice
• credit notes linked to the original invoice
• invoice PDFs in your client's language, multiple currencies and a card payment link on the invoice
• you can see when an invoice was opened, and automatic reminders go out 3, 14 and 30 days after the due date
• recurring invoices for retainers and subscriptions
• receipts you scan have their VAT read automatically
• sales and purchase VAT books per rate, including exports and reverse charge, and VAT reports for you and your accountant, with Excel and PDF exports
• importing clients, suppliers, products and opening balances from Excel or CSV, and a mobile app

See the invoicing module, the accounting module and pricing. For filing returns under Making Tax Digital you still need MTD-compatible software, and for the 2029 e-invoicing mandate a Peppol-capable solution.