Commercial invoice vs. VAT invoice: what’s the difference?

If you’ve just started a new business and are sending or receiving invoices for the first time, you may come across the following terms: commercial invoice and VAT invoice. Do you know which type of invoice you need to be dealing with? If not, check out our comprehensive guide to commercial invoices vs. VAT invoices for business, right here.

What is a commercial invoice?

If you’re shipping goods overseas, you’ll need to include a commercial invoice with your shipment. Commercial invoices require more information than standard invoices, so when you send a commercial invoice document, ensure that you include the following information: 

• Full name, address, and contact details of the buyer

• Full name, address, and contact details of the seller

• Number and date of issue of the commercial invoice

• Number and date of issue of the purchase order, proforma invoice, or sales contract

• Price, payment method, currency, discounts, and additional charges

• Quantity, gross/net weight of goods, number/weight/type of packages

• Harmonised system (HS) tariff code and a basic description of the goods 

• Incoterms, including delivery and payment

• Country of origin of the goods

• Means of transport / route

• Actual value of the goods

What is a VAT invoice?

A VAT invoice, also known as a tax invoice, is a specific type of invoice that needs to be used if you or your customer are registered for VAT. Should you be registered for VAT? There’s a simple way to check. If your VAT taxable turnover is more than £85,000, then you’ll need to register for VAT with HM Revenue and Customs (HMRC) and start sending VAT invoices.

There are several types of VAT invoice: a simplified invoice (used for retail supplies under £250), a modified invoice (used for retail supplies over £250), and a full invoice. Depending on which form of invoice you need to use, there are slightly different stipulations regarding what information needs to be included. A full VAT invoice should show the following:

• The name and address of the supplier

• The name and address of the business receiving the goods

• A unique identification number

• Description of goods/services, including quantities

• Date of issue

• Time of supply, also referred to as the “tax point”

• The VAT registration number of the supplier

• Total amount (excluding VAT)

• Total amount of VAT

• Rate of per-item discount (if applicable)

• VAT rate charged per item (plus notes for exempt items)

Modified VAT invoices should include all the above information, as well as the total amount including VAT. Simplified tax invoices aren’t so strenuous, and only need to show the following:

• The name and address of the supplier

• The VAT registration number of the supplier

• A unique identification number

• Time of supply

• Description of goods/services, including quantities

• VAT rate charged per item

• Total amount including VAT

What’s the difference between a commercial invoice and a VAT invoice?

As you can see, there are a couple of key differences between commercial invoice documents and tax invoices. Put simply, they’re intended to be used for different things. While a commercial invoice is simply the standard type of payment demand issued after the delivery of goods and services, VAT invoices have a much more specific purpose.

In short, you must issue a valid VAT invoice to charge VAT on sales or reclaim VAT that you’re charged for goods and services. Consequently, each invoice type requires slightly different information to be included.

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