Charging VAT on invoices before you are VAT registered

Overview 📘

Businesses often find themselves in a short gap between applying for VAT registration and receiving their VAT number.

During this time, you cannot legally charge VAT on invoices, as you are not yet registered. However, once HMRC issues your VAT registration number, you must account for VAT on all sales made from your effective date of registration (EDR) - even those issued before you received the number.

To manage this, businesses usually take a practical approach that balances legal compliance with cash flow needs.

🔍 Key HMRC Rule

“You cannot include VAT on your invoices until you get your VAT number, but you can increase your prices to account for the VAT you’ll need to pay to HMRC.”

🔗 HMRC: Accounting for VAT while you wait for your VAT number

This means that even though you cannot show VAT separately, you can build it into your prices so that you have funds available to pay HMRC once your registration is complete.

✅ Your Options Between EDR and Receiving Your VAT Number

You have two practical approaches to choose from:

Option 1: Wait to Invoice Until You Receive the VAT Number

• Delay issuing invoices until your VAT registration is confirmed.
• Once you receive your VAT number, issue VAT invoices in the usual way.
• This avoids reissuing invoices later, but may negatively affect cash flow.

💡 Best suited for one-off or low-frequency billing arrangements.

Option 2: Invoice with VAT-Inclusive Pricing

• You can issue invoices without showing VAT separately, but increase your prices to cover the VAT that will be due.
• Include a clear note on the invoice explaining the situation, for example:

“VAT registration applied for. Price includes VAT, which will be accounted for and a full VAT invoice issued once the VAT number is received.”

• When you receive your VAT number, reissue proper VAT invoices showing:
  • The VAT amount separately.
  • Your VAT registration number.
  • The same invoice date (if within the same accounting period).

💡 Example:

If a product normally costs £100 + VAT, you charge £120 (VAT-inclusive) while waiting for your VAT number. When your registration comes through, you reissue an invoice showing:

• Net: £100
• VAT (20%): £20
• Total: £120

This ensures your customer can reclaim the VAT once the formal tax invoice is issued.

💡 Best Practice Tips

• Always keep records of sales made during the waiting period, including copies of interim invoices and later VAT reissues. If you use Xero, this can be done easily in the system.
• Let customers know early that your prices are VAT-inclusive until registration is confirmed.
• Update your accounting software as soon as your VAT number is issued.
• If you have already submitted invoices, send replacement tax invoices once your VAT number is available.

✅ Summary

• You cannot charge VAT or show it on invoices until you receive your VAT number.
• You must still pay VAT on sales made from your effective registration date.
• The simplest approach is to issue VAT-inclusive invoices with a note explaining the situation.
• Reissue formal VAT invoices once your number arrives, ensuring your customers can reclaim input tax.