Summary

Invoicing is the last step between completing a job and getting paid — and the quality of your invoice directly affects when (and whether) you get paid. An unclear, incomplete, or unprofessional invoice gives customers reasons to query payment, delay payment, or dispute it. A clear, professional invoice with explicit payment terms and the correct legal information removes these objections.

For VAT-registered businesses, an invoice that fails to meet the requirements of a valid VAT invoice means the customer cannot reclaim input VAT — which is a significant irritation to any business customer and a frequent cause of payment delay while the invoice is reissued.

Many tradespeople underuse their statutory late payment rights. The Late Payment of Commercial Debts Act 1998 gives you the right to charge interest and a compensation fee on any late invoice between businesses — without having these terms in your contract. Using this right, stated clearly on your invoice, reduces late payment significantly.

Key Facts

  • VAT invoice requirements — VAT number, date, sequential number, your name/address, customer name/address, description, VAT rate, VAT amount, total. Missing any element = not a valid VAT invoice
  • Simplified VAT invoice — Permitted for invoices under £250 total. Omits customer name/address and VAT breakdown (shows gross amount and VAT rate)
  • Invoice number — Must be unique and sequential. Do not reuse numbers. Gaps in the sequence (deleted invoices) should be documented
  • Payment terms — Must be stated on every invoice. '30 days from invoice date' is the UK standard for B2B. Domestic consumer jobs: typically 'payment on completion'
  • Late payment interest (B2B) — Statutory rate: 8% above Bank of England base rate per annum, calculated daily from the date payment was due. No contractual provision needed
  • Late payment compensation — £40 per invoice under £1,000; £70 for £1,000–£9,999; £100 for £10,000+. Statutory right, no contract required
  • CIS invoices — Where CIS applies, the invoice should show: gross amount, CIS deduction amount, net payment due. The deduction is not optional — the contractor deducts regardless of what the invoice says
  • Retention — Include retention provisions in your contract, not just the invoice. Invoice the gross amount and show the retention deduction separately, with the expected release date
  • Electronic invoices — Fully acceptable. PDF or other electronic formats have equal legal status to paper
  • Invoice storage — Must retain invoices for 6 years (VAT) and 6 years from date of transaction for income tax purposes

Quick Reference Table

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Invoice Element Required (VAT) Required (non-VAT) Notes
Your name/trading name Yes Yes Must match HMRC registration
Your address Yes Yes Business address
Customer name Yes Yes Legal name, not just "Mr Smith"
Customer address Yes Recommended Needed for debt collection
Invoice number Yes Yes Sequential, unique
Invoice date Yes Yes Date of issue
VAT number Yes No "VAT Reg No: GB123456789"
Description of services Yes Yes Sufficient detail to support the charge
Quantity Yes Yes Hours, m², items
Unit price Yes Recommended
VAT rate per line Yes No 20%, 5%, 0%, or exempt
VAT amount per line Yes No
Total exc. VAT Yes No
Total VAT Yes No
Total inc. VAT Yes Yes (just total)
Payment terms Recommended Recommended "Payment due within 30 days"

Detailed Guidance

Writing a Good Description

The description on an invoice is frequently inadequate. "Plumbing work at 10 Main Street, March" is not good enough. A court or HMRC inspector who disputes the invoice needs enough detail to understand what was done.

A good description includes:

  • The type of work (e.g., "Supply and install new bathroom, including…")
  • The specific location within the property if relevant
  • Reference to the quote or purchase order if there is one
  • Materials if separately itemised

Itemising labour separately from materials is good practice — it matters for CIS (deduction applies only to labour) and for VAT (most construction services are standard-rated, but new residential construction may be zero-rated — see vat for trades).

Payment Terms

State payment terms clearly and prominently on every invoice. Consider:

"Payment due 14 days from invoice date" — Shorter than standard 30 days; appropriate for domestic consumers who pay on completion.

"Payment due 30 days from invoice date" — UK B2B standard. Note: prompt payment code signatories (large companies) commit to paying SME subcontractors within 30 days.

"Interest will be charged on late invoices at 8% above Bank of England base rate per day under the Late Payment of Commercial Debts Act 1998" — Including this on every invoice signals you will enforce your rights. Many customers who receive this message pay on time.

Stage payment reference — If the job has stage payments, reference the stage: "Stage 2 of 3: Completion of second fix. Remaining balance £X due on practical completion."

Late Payment Enforcement

Step 1: Issue a statement. Send a copy of the outstanding invoice with a covering note. Flag the overdue date. Keep the tone professional.

Step 2: Credit control call. Phone the customer (not just email). Confirm receipt of the invoice, confirm there are no disputes, establish a specific payment date commitment.

Step 3: Formal late payment notice. Issue a formal letter stating the outstanding amount, the date it was due, the statutory interest accrued, and the compensation fee. Give 7 days to pay.

Step 4: Letter before action. State that if payment is not received within 7 days, you will commence legal proceedings via the county court small claims track. This is a serious step — only send it if you intend to follow through.

Step 5: Small claims (under £10,000) or county court. Filing fee is £35–£455 depending on claim value. The process is designed for self-representation. If you win, the court orders the defendant to pay — though enforcement is a separate step if they still refuse.

CIS Invoices

Where CIS applies, the invoice from the subcontractor (you, if you are the subcontractor) should show:

Gross amount:      £6,000.00
CIS deduction (20%): -£1,200.00
Net payment due:   £4,800.00

Note: Materials cost should be separated from labour on a CIS invoice. CIS deduction applies to labour only.

The contractor (your customer) will then pay you £4,800 net and remit £1,200 to HMRC on your behalf. You receive a payment and deduction statement from the contractor. Keep these — they are credited against your Self Assessment tax bill.

Retention Invoicing

If you operate a retention system:

  1. Invoice for the full value of completed work
  2. Show the retention deduction: "Retention 5% held until practical completion: -£500"
  3. Show the net due: "Amount payable now: £9,500"
  4. Include the retention release date or condition: "Retention of £500 due for release on [date] or 3 months after practical completion"

When the defects liability period expires, invoice for the retention separately: "Release of retention held per contract dated [date]: £500."

Using squote: squote automatically handles VAT on every line item of a quote, including the domestic reverse charge for qualifying subcontractor work, so the figures on your invoice match what was agreed from the start.

Software Options

Invoicing software for tradespeople — most integrate with QuickBooks or Xero for accounting:

  • Xero, QuickBooks, Sage — Full accounting software with invoicing
  • Tradify, Simpro, BuildXact — Trade-specific job management with integrated invoicing
  • Wave — Free invoicing with online payment (no UK bank integration as standard)
  • Microsoft Excel/Google Sheets template — Adequate for low volume, but no automation or payment tracking

For VAT-registered businesses, software that submits MTD (Making Tax Digital) VAT returns is mandatory from April 2022.

Frequently Asked Questions

My customer disputes the invoice amount. What do I do?

Respond promptly and in writing. If the dispute is justified (error on your part), issue a credit note and corrected invoice. If the dispute is not justified, request the customer specify in writing exactly what they dispute and why. Compare to the original quote/contract. If the dispute cannot be resolved, consider mediation before going to court.

Can I charge interest on invoices to domestic (non-business) customers?

Statutory late payment rights under the Late Payment of Commercial Debts Act 1998 apply only to B2B transactions, not domestic consumers. For domestic invoices, you can charge interest only if it is stated in your original terms and conditions. Consumer-facing terms must be fair under the Consumer Rights Act 2015 — interest rates must be proportionate.

Does the invoice date or the date services were delivered determine the VAT point?

For continuous supply (work done over several months), the VAT tax point is the earlier of: the date of invoice or the date of payment. For single supplies, the tax point is the date services were completed or the date of invoice if the invoice is issued within 14 days of completion. This matters for VAT returns — account for VAT in the correct period.

I lost an invoice. Do I need to reissue it?

You can reissue a copy invoice marked "COPY — Duplicate" with the original invoice date and number. Do not issue a new invoice with a new date and number — this creates double accounting. If HMRC inspects, they need to reconcile your copy invoice to your VAT return for the original period.

Regulations & Standards

  • Value Added Tax Act 1994 — VAT invoice requirements

  • HMRC VAT Notice 700:2013 — Full VAT invoicing rules

  • Late Payment of Commercial Debts Act 1998 — Statutory interest and compensation rights

  • Late Payment of Commercial Debts (Interest) Act 1998 (SI 2013/395) — Compensation fee amounts

  • Consumer Rights Act 2015 — Consumer terms must be fair and transparent

  • HMRC VAT Invoicing Guidance — Official requirements for VAT invoices

  • HMRC Late Payment Guidance — Statutory late payment rights

  • Federation of Small Businesses — Getting Paid — Practical guidance on credit control

  • payment terms — Payment term structures and late payment enforcement

  • vat for trades — VAT registration and invoice requirements

  • cis scheme — CIS invoice format and deduction requirements

  • payment chasing — Late payment chasing templates