International invoicing and accurate record keeping
When invoicing sales overseas, often the reverse charge mechanism applies. This shifts responsibility for reporting a VAT transaction from the seller to the buyer of a good or service. Most sales between EU member states are subject to reverse charge rules, which are designed to simplify trade by making the customer accountable for VAT. But the seller must state on the invoice: ‘Subject to reverse charge in the country of receipt’.
The British tax authorities require businesses dealing with foreign customers to issue a VAT invoice clearly showing the VAT sum in sterling as well as the other currency. When updating your accounts, invoices in foreign currencies must be recorded in sterling with the foreign sum converted using a commercial rate as of the invoice date. If you’re owed money in foreign currencies, it’s necessary to keep track of the amount outstanding in sterling even though exchange rates are constantly fluctuating. So, if you issued an invoice in euros, the bill has yet to be paid, but the euro has dropped in value against the pound in the intervening period, you must recalculate the amount owed based on the new exchange rate. The difference should be registered in your profit and loss account as a foreign exchange loss.
Selling to foreign customers can be complex, so talk to an experienced accountant to check which rules and regulations apply in different jurisdictions and where you should be paying tax.
What to include on an international invoice
- The date of issue
- A unique invoice number
- Your company’s full name and address
- The customer’s full name and address
- A description of the goods or services provided and the quantity
- The date and place of supply
- The total amount payable in the agreed currency
If you’re registered to pay VAT and are sending the invoice to a customer in another EU country also include:
- Your VAT number
- The VAT number of the customer if applicable
- The VAT rate being charged
- The taxable amount per rate
- The VAT amount payable
- The sterling equivalent of VAT payable if the invoice is in another currency
- If you’ve delivered a service and the VAT rate is zero, state: ‘Article 44 of the EU VAT Directive; VAT is due by the recipient of the service’
- If you’ve sold goods and the VAT rate is zero, state: ‘VAT exempt, EC Supply Article 138 of the EU VAT Directive’