Charging VAT before receiving a VAT number

Coronavirus delays

There have been well-documented delays across HMRC’s services in the wake of the pandemic. One badly-affected service is the department that issues VAT numbers, with HMRC giving an apology last year amid reports that some businesses had been waiting for over four months.

When applying for a VAT number, it’s possible to ensure things are as efficient as possible by:

• making the application online, as errors and omissions are flagged up immediately
• specifying the required registration date if this is earlier than the standard date; and
• ensuring all the required information, such as bank account details, directors’ information, etc. has been included.

Online applications also remove the possibility of the form being lost in the postal system.

Waiting for the number

The VAT number will take some time to arrive, meaning the business can’t issue valid VAT invoices in the meantime. However, there are some useful tips on how to manage invoicing in the interim, particularly if the delay is likely to be significant.

Firstly, businesses should ensure they include a statement on the invoice along the lines of “VAT number applied for - a VAT invoice will be issued once received. “

Secondly, it’s permissible to issue invoices that include the amount of VAT, but they should not include this as a separate line. So, if they are raising an invoice for £1,000, it’s fine to issue an invoice for £1,200, but they should not structure the invoice as £1,000 plus £200 VAT. The £200 can then be put aside ready to account to HMRC if the business wishes.

It is essential that a VAT invoice is issued once the number is received, or the customer will be unable to recover input tax.

Customer refuses to pay

Businesses may find customers reluctant to pay without a valid VAT invoice, particularly if they operate in industries which are susceptible to VAT fraud.

The first option would be to ask the customer to make a payment on account, equal to the net amount, with the VAT element paid later on when they are able to issue a valid invoice. This requires an element of goodwill, so it's important to ensure the unpaid amount isn’t chased by credit control before the replacement invoice is issued. Some customers may still object to this as they may worry that a part payment is an acknowledgment of the full amount.

Another option would be to cancel the invoice using a credit note, and issue an invoice for the net amount only, with no mention of VAT. Once the VAT number is received, a VAT only invoice can then be issued for the 20% element. This is likely to be a more satisfactory solution, as nobody (including HMRC) is out of pocket for any period of time.