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 tax web, to ensure that revenue stream keeps 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 of invoice is a VAT invoice.
What is VAT?

Before you understand what is a VAT invoice, you need to understand what is VAT. VAT is an acronym for 'Value Added Tax'. It is a bit 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 a form of tax imposed on consumption of many types of goods and services, which the end consumer must pay, 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.

What is a VAT Invoice Like?

Any supplier of goods or services in a European Union country must provide a VAT invoice or VAT bill when making a sale. The VAT charged in every sale is added to the sales price of the product or service. After a seller recovers VAT amount from a buyer, the government recovers it from the seller. To know how much is the VAT liability of a business, it is necessary that they maintain VAT invoices related to every sale.

The VAT related 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. In the following lines, I present the details that necessarily need to be added to a VAT invoice. Check out VAT invoice samples of goods, that you might have purchased, to know what they look like.

First and foremost, you need to have a unique invoice number for each VAT invoice that you generate. I hope, you already have an idea about how to write an invoice and the required details. The name of the selling firm, its address, VAT registration number, particulars of products or services sold, the VAT rate imposed, selling price with VAT and the date of sale need to be included in the tax 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 VAT invoices. For example of a VAT invoice, rummage through the bunch of invoices that you might have received from purchase of electronics items as they usually come under the VAT tax net.

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