Implications of ‘Not a VAT Invoice’ on Tax Points and Cashflow

Although suppliers such as mobile phone providers are VAT registered, a careful look at the invoices issued to customers shows the words ‘this is not a VAT invoice’—why is that?

A valid VAT invoice is a crucial document for reclaiming VAT on purchases. It can be full, simplified, or modified, depending on the value of the supply and the information it includes. A full VAT invoice for costs exceeding £250 consists of the date and time of the supply, the supplier’s name and address, and VAT registration number, as well as the recipient’s name and delivery address. Omitting these details can result in an invalid document for VAT purposes.

Simplified invoices include the same information as a full invoice, excluding the date, the customer’s details, the subtotal, the total VAT amount, and the price and quantity of each item. It shows the total VAT-inclusive amount to be paid by the customer and can only be issued for purchases up to £250. A modified invoice must be agreed upon with the customer to include the same information found on a full invoice, but the product prices and total amounts will be VAT-inclusive. Modified invoices are only issued for sales exceeding £250 that include taxable products.

Whichever of these VAT invoices is used, each confirms the tax point. In most cases, the basic tax point for a supply of goods occurs on their removal, usually at the time of delivery by the supplier or collection by the buyer. The basic tax point for a supply of services is when the services are performed. However, the actual tax point overrides the basic tax point, which will happen if the supplier issues a VAT invoice or receives a payment in advance of the basic tax point. A later tax point can also arise where the supplier issues a VAT invoice within 14 days after the basic tax point.

An invoice that shows the words ‘this is not a VAT invoice’ does not create a tax point because it is not a VAT invoice. The tax point is created when the invoice is paid, or the date of the supplier’s invoice is within 14 days following the basic tax point. Once paid, the supplier must issue a proper VAT invoice to the customer (usually on request). The issue of a ‘not a VAT invoice’ is therefore a means for the supplier to potentially shift the tax point to a later date so that the supplier has the payment from a customer before having to pay HMRC. The benefit for the supplier is cash flow.

This approach is also seen with pro forma invoices. A pro forma invoice is a preliminary bill of sale sent to buyers in advance of a shipment or delivery of goods or services. It often includes a quotation or estimate and does not serve as a demand for payment. Issuing a pro forma invoice does not create a basic tax point. Once the customer pays, whether in part or in full, this creates an actual tax point, and the supplier issues a proper VAT invoice.

The phrase ‘this is not a VAT invoice’ is commonly found with mobile phone contracts, often taken out in the personal name of a director or employee who then reclaims via expenses. To the mobile phone network, the customer is the individual, not a business. By issuing a ‘not a VAT invoice’ document, the output is declared when the customer pays.

Practical point

Strictly, the VAT should not be reclaimed if a director claims the personal mobile invoice through the business because the documentation will state, ‘This is not a VAT invoice’. However, HMRC rarely takes issue with such invoices, although it may if the claim is for another type of supply, depending on the amounts of VAT involved.

Partner note:

VAT Regulations 1995 (Regulation 13): Obligation to provide a VAT invoice

VATTOS3500 – Identifying a tax point: the basic tax point