Glossary · UK invoicing

Invoicing glossary

Plain-English definitions of every term you'll meet on a UK invoice or quote: VAT, MTD, reverse charge, sole trader and more.

Invoice: A commercial document recording the supply of goods or services. In the UK it must comply with HMRC requirements and be retained for 6 years (10 years for MTD).
Quote: A written commercial offer that becomes a binding contract once accepted by the customer. Distinct from a proforma invoice, which is purely informational.
Proforma invoice: An informational document showing what a future invoice will look like. Has no accounting or legal value — used for export, customs or to request an advance payment.
VAT: Value Added Tax. Indirect tax collected by businesses and remitted to HMRC. UK rates: 20 % (standard), 5 % (reduced), 0 % (zero-rated).
Net amount: The amount of a transaction excluding VAT. The base on which VAT is calculated.
Gross amount: The total amount paid by the customer including VAT. Gross = Net × (1 + rate/100).
VAT registration threshold: Annual taxable turnover above which UK businesses must register for VAT. Set at £90,000 since April 2024.
Making Tax Digital (MTD): HMRC programme requiring digital record-keeping and digital VAT returns. Mandatory for all VAT-registered businesses since April 2022.
Reverse charge: Mechanism by which the customer (not the supplier) accounts for VAT. Applies to most B2B services supplied across EU/UK borders post-Brexit.
Freelancer: A self-employed individual invoicing clients without a subordination link. Common UK structures: sole trader, limited company.
Sole trader: Simplest UK self-employment status. Personal liability for business debts. Self-assessment tax return required each year.
Limited company: UK incorporated entity with separate legal personality. Pays corporation tax (25 % above £250k profit). Director can pay themselves via salary + dividends.
Deposit: Partial payment made on order. Once paid, both parties are committed to the contract. Should be invoiced separately and reconciled on the final invoice.
Due date: Deadline by which the invoice must be paid. UK best practice: 30 days from issue. The Late Payment of Commercial Debts Act allows interest at 8 % + Bank of England base rate after this period.
Late payment fee: Compensation owed for late B2B payment under UK law (Late Payment of Commercial Debts Act). Includes statutory interest plus a fixed sum (£40–£100 depending on debt size).
Invoice number: Unique sequential identifier on every invoice (e.g. INV-2026-001). HMRC requires unbroken sequence — gaps may trigger a tax inspection.
Tax point: The date used to determine which VAT period a transaction falls into. Usually the invoice date, but can be the supply date if earlier.
IBAN / BIC: International Bank Account Number and Bank Identifier Code. Required to receive a SEPA transfer from European clients. Add them to your invoice payment block.
UTR (Unique Taxpayer Reference): A 10-digit reference issued by HMRC to identify a self-employed individual or company for self-assessment. Should appear on UK invoices when relevant.
CIS (Construction Industry Scheme): HMRC scheme requiring contractors to deduct money from subcontractor payments and pass it to HMRC. Specific invoice rules apply for the construction sector.
EC Sales List: Form (no longer required from Great Britain post-Brexit but still required from Northern Ireland for goods) declaring B2B intra-EU sales for VAT cross-checking.
Credit note: Document issued to cancel or correct a previous invoice (e.g. discount, return). Has its own sequential number and references the original invoice.
Purchase order (PO): Buyer-issued document committing to a future purchase. Often referenced on the supplier's invoice to ease reconciliation in larger organisations.
Self-billing: Arrangement where the customer issues the supplier's invoice on their behalf, governed by a written self-billing agreement. Common in marketplaces and royalties.
Electronic invoice: An invoice issued, transmitted and received in a structured digital format (XML, UBL, Peppol). Increasingly required for B2G transactions across Europe.

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Glossary · UK invoicing

Invoicing glossary

Plain-English definitions of every term you'll meet on a UK invoice or quote: VAT, MTD, reverse charge, sole trader and more.

Invoice: A commercial document recording the supply of goods or services. In the UK it must comply with HMRC requirements and be retained for 6 years (10 years for MTD).
Quote: A written commercial offer that becomes a binding contract once accepted by the customer. Distinct from a proforma invoice, which is purely informational.
Proforma invoice: An informational document showing what a future invoice will look like. Has no accounting or legal value — used for export, customs or to request an advance payment.
VAT: Value Added Tax. Indirect tax collected by businesses and remitted to HMRC. UK rates: 20 % (standard), 5 % (reduced), 0 % (zero-rated).
Net amount: The amount of a transaction excluding VAT. The base on which VAT is calculated.
Gross amount: The total amount paid by the customer including VAT. Gross = Net × (1 + rate/100).
VAT registration threshold: Annual taxable turnover above which UK businesses must register for VAT. Set at £90,000 since April 2024.
Making Tax Digital (MTD): HMRC programme requiring digital record-keeping and digital VAT returns. Mandatory for all VAT-registered businesses since April 2022.
Reverse charge: Mechanism by which the customer (not the supplier) accounts for VAT. Applies to most B2B services supplied across EU/UK borders post-Brexit.
Freelancer: A self-employed individual invoicing clients without a subordination link. Common UK structures: sole trader, limited company.
Sole trader: Simplest UK self-employment status. Personal liability for business debts. Self-assessment tax return required each year.
Limited company: UK incorporated entity with separate legal personality. Pays corporation tax (25 % above £250k profit). Director can pay themselves via salary + dividends.
Deposit: Partial payment made on order. Once paid, both parties are committed to the contract. Should be invoiced separately and reconciled on the final invoice.
Due date: Deadline by which the invoice must be paid. UK best practice: 30 days from issue. The Late Payment of Commercial Debts Act allows interest at 8 % + Bank of England base rate after this period.
Late payment fee: Compensation owed for late B2B payment under UK law (Late Payment of Commercial Debts Act). Includes statutory interest plus a fixed sum (£40–£100 depending on debt size).
Invoice number: Unique sequential identifier on every invoice (e.g. INV-2026-001). HMRC requires unbroken sequence — gaps may trigger a tax inspection.
Tax point: The date used to determine which VAT period a transaction falls into. Usually the invoice date, but can be the supply date if earlier.
IBAN / BIC: International Bank Account Number and Bank Identifier Code. Required to receive a SEPA transfer from European clients. Add them to your invoice payment block.
UTR (Unique Taxpayer Reference): A 10-digit reference issued by HMRC to identify a self-employed individual or company for self-assessment. Should appear on UK invoices when relevant.
CIS (Construction Industry Scheme): HMRC scheme requiring contractors to deduct money from subcontractor payments and pass it to HMRC. Specific invoice rules apply for the construction sector.
EC Sales List: Form (no longer required from Great Britain post-Brexit but still required from Northern Ireland for goods) declaring B2B intra-EU sales for VAT cross-checking.
Credit note: Document issued to cancel or correct a previous invoice (e.g. discount, return). Has its own sequential number and references the original invoice.
Purchase order (PO): Buyer-issued document committing to a future purchase. Often referenced on the supplier's invoice to ease reconciliation in larger organisations.
Self-billing: Arrangement where the customer issues the supplier's invoice on their behalf, governed by a written self-billing agreement. Common in marketplaces and royalties.
Electronic invoice: An invoice issued, transmitted and received in a structured digital format (XML, UBL, Peppol). Increasingly required for B2G transactions across Europe.

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£2 for 2 hours of unlimited invoices and quotes · All required details handled automatically

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