What is a VAT Invoice

Perhaps, one of the most difficult financial systems to understand in the world, is the taxation system of a country. As time goes on, the government comes up with more and more complex tax laws and spins an intricate web, to ensure that revenue streams keep flowing, unabated.

Businesses need to create sales invoices with details of taxes involved, as they must ultimately be accountable to the government, when they open up their balance sheets. One such type is a VAT invoice.

VAT is an acronym for 'Value Added Tax'. It is a complicated form of tax imposed mainly by countries in the European Union and Asian countries like India. Firstly, this is a form of consumption tax. That is, it is imposed on consumption of many types of goods and services, which the end consumer must pay for, as part of the end price.

As the name suggests, it is a tax that is imposed on the added value to a product or service, which is recovered at every stage of the sale and distribution chain, by the government. It is actually a form of sales tax, where instead of a direct imposition of tax on the end consumer, it is charged on every transaction that occurs in between.

Any supplier of goods or services in a European Union country must provide a VAT bill, when making a sale. The tax charged in every sale is added to the sales price of the product or service. After a seller recovers the amount from a buyer, the government recovers it from the seller.

To know the VAT liability of a business, it is necessary that the invoices related to every sale are maintained. The rules and requisite invoice details may vary for every country. However, there are certain details which are almost same for all. So there is no single VAT invoice definition.

Here are the details that need to be included. First and foremost, you need to have a unique invoice number for each one that you generate. The name of the selling firm, its address, VAT registration number, particulars of products or services sold, the tax rate imposed, selling price with VAT, and the date of sale need to be included in the invoice.

One thing to be noted is that if you are a seller of items that do not come under the VAT net, you need not issue any invoices related to it.

It is compulsory for the business that it recovers VAT from the customer and specifies it in an invoice. Thus, accounting on part of the business becomes simpler and the management can save itself from any of the penalties imposed. In short, VAT invoice is an inescapable piece of paperwork, when it comes to selling goods in countries of the European Union.