How to Create an Invoice for Your UK Limited Company

Ryan Patrick

• 8 min read
How to Create an Invoice for Your UK Limited Company

Creating an invoice is a vital part of running a UK limited company. Every time you complete a payment period, you must submit an invoice to your clients before they make payment. The primary reason why most limited companies fail in the UK is a result of bad cash flow management. That's why you need to format your business invoices correctly, or else you could experience payment delays.

An accurate invoice will provide your clients with an effective way of encouraging prompt payment for your products.

This blog provides a detailed process of creating standard and VAT invoices that cover every detail you should include in a limited company.

What's an Invoice and When Do You Need it?

Before creating an invoice, let's start by knowing what an invoice is. An invoice is an official document you send to your customer before or after purchasing your product or service. The invoice holds a legal significance and plays a vital role in the accounting process. It documents transactions and functions as a payment request, informing your client of your purchased products and the payment conditions.

What to Include in the Limited Company Invoice

You should enter the following information when creating a limited company invoice:

  • Unique identification number
  • Company full name as it is on the certificate of incorporation, contact information, and address
  • Company name and address of the client you're invoicing
  • Concise details regarding the product(s) or service(s) being billed
  • The date when the products or services were delivered to the customer
  • The invoice issuance date
  • The total charges for the transaction
  • Value Added Tax (VAT), if applicable to a VAT-registered company, to ensure HMRC rules on VAT invoice compliance.
  • The overall amount due

How to Create a Company Standard Invoice

Here is how to create a company standard invoice.

1. Use professional format

Since the invoice is a legal document, ensure it looks like it is. You can use various tools to create a standard invoice, including:

  • Microsoft Word
  • Google Docs
  • Spreadsheets

Additionally, you can source and customise your invoice template through booking software such as Freshbooks or Sage or use a free design app like Canva. Choose a clear font and styling that reflects your brand, regardless of your tool.

Remember to include a uniform header featuring your company logo. You can also incorporate your brand colours to make the invoice more recognisable. To enhance the uniqueness of your invoice, incorporate additional personalised elements that reflect your brand, like the company's tagline or a mission statement. Conclude the invoice with a gratitude message to the customer, for example, a "Thank You" message.

2. Include company details

Your invoice needs vital business details. You must include company information and the business or person you're invoicing. Ensure you include:

  • Trading name and your correspondence address
  • Contact information like email addresses and telephone number
  • Customers' business name, contact name, and their address
  • Customers contact details like email address and telephone number
  • Registered company name
  • Your registered address
  • Your business registration number

If you're trading under a different name, include the name to help your customer recognise you. The easiest way to incorporate your trading name will be like White Rose Bridal Limited, trading as Rose Bridals. You will add the trading name to the footer of your invoice, with the registered office address and business registration number.

If you add the names of directors in the invoice, ensure you incorporate all directors' names to comply with HMRC rules. Once you've included all required information, check and recheck the invoice to ensure you're sending your client a 100% accurate invoice to reduce the chances of payment delays.

3. Label and identify the invoice

Although it sounds obvious, label your invoice with the word 'Invoice' prominently at the top of the document using a title or a bold font. This ensures clarity for your client regarding the nature of the document and reduces the risk of it being overlooked or lost among other correspondence.

You must also include an identification number referred to as an invoice number as per government guidelines. The number is helpful since it helps you and your customer keep track of the invoice. It's also beneficial when chasing delayed payments or reviewing past transactions.

The way you decide to formulate the number identification is up to you. For example, you can opt for numbers with letters and numbers or a sequence of numbers working in a consecutive pattern. No matter your number preference, ensure the format is consistent, and you can link it to the company's internal system to help you easily distinguish different invoices and customers.

4. Summarise what the client purchased

Once you've labelled your invoice and included your business details, itemise the provided goods or services. Use a table format for clarity, listing each item with relevant information like price and quantity.

For example, you can have columns of the following information

  • Name of good or service
  • A short description of your items or service
  • Quantity provided
  • Cost of every individual product or service

5. Break down cost and incorporate the total balance

After itemising your table, you need to calculate and display the total due from your customer. Also include the product or service's additional charges like shipping charges, tax, or a discount.

Include a subtotal for clarity, followed by additional charges or discounts, before stating the final total. Consider bolding or slightly enlarging the font of the final total to enhance readability and ease of interpretation. If your company is VAT registered, you must issue a VAT invoice, which isn't the same as a standard invoice.

6. Include relevant dates

Your invoice should include these three key dates.

  1. Invoice issuance date: this date should be at the top of the invoice so your customer can see when the invoice was sent.
  2. Supply date: this is the date the items were provided. If you supplied multiple items, the dates may vary. For clarity, add a column date to your products table to show the supply date for each item delivered.
  3. Due date: The due date is crucial for ensuring timely payments. It signifies the deadline by which you anticipate receiving the payment. Any payment that you do not receive by this date is considered overdue.

7. List of the payment terms

Include payment terms on the invoice, specifying the due date and preferred payment methods, along with your bank details for payment. To expedite the payment process, offer your clients various payment options, such as:

  • Wise
  • bank transfer
  • PayPal, cash
  • Cheque
  • Debit and credit card

For recurring clients, provide them with a direct debit option for regular payments. Additionally, mention the currency they will use if you run a business across borders.

If applicable, include late penalty fees and add complete information to your payment terms.

How to Create a VAT Invoice

A VAT invoice is for businesses that are registered for VAT. This is not the same as a standard invoice.

This invoice needs all details used in the standard invoice and extra VAT information as follows:

  • Company VAT registration number
  • Unit price for every good or service
  • VAT rate charged
  • Total value excluding VAT

There are three VAT rates you may charge, namely:

  1. Standard rate: The standard VAT rate of 20% applies to most products and services in the UK unless they qualify for a zero rate or reduction.
  2. Reduced rate: A reduced rate of VAT is a lower percentage applied to certain goods and services based on the conditions of the sale.
  3. Zero rates: these rates mean the product or service you provide is VAT taxable at a 0% charge rate. When preparing a VAT invoice, include the zero-rated sales and report them when filing a VAT return.

For more information on the VAT rate your company should charge, visit the GOV.UK.

Are there Other Types of Invoices?

We've looked into standard and VAT invoices; however, you should know these are not the only invoices a limited company uses. Several invoices depend on the business industry and the items you provide.

Other types of invoices include:

1. Commercial Invoice

This is also called a business invoice, which you issue to your client when you deliver products or services internationally.

  • When preparing a commercial invoice, it must include:
  • Shipper and payee information
  • Country of country and the goods' destination
  • Shipping date and unique identification number
  • Shipment quantity
  • Goods description
  • The package format, quantity, and weight
  • Declared value
  • Required registers

A commercial invoice may contain a declaration verifying the invoice's validity, information about the individual overseeing the sale, and any special notes beneficial for customs purposes.

2. Credit Invoice

This type of invoice is also referred to as a credit memo, an amendment to the original invoice. You issue this invoice when a client owes you money, and you must change the previous invoice they received.

You can do this for several reasons like:

  • When the customer receives damaged items
  • When you send incorrect products
  • When you overcharge the buyer
  • When the items you sent are returned

The credit invoice will show a total amount with a negative value, effectively reversing the amount indicated on the original invoice.

3. Timesheet Invoice

You issue this type of invoice when billing by hour. This type of invoice is mainly used by professionals who offer services in diverse industries like:

  • Attorneys
  • Freelancers
  • Consultants
  • Therapists
  • Accountants

4. Debit Invoice

A debit invoice is similar to a credit invoice. It's also referred to as a debit demo; you issue this invoice when you want to adjust an original demo by increasing the total. You do this if you initially undercharged your client, and they need to pay the extra cost.

Invoicing stages

The timing and type of invoice you issue will vary based on several factors, including the nature of the goods and services you offer, service delivery time frame, and the preferences of your company and the client.

1. Final invoice

this is the standard invoice you send after you've provided items or services to your client.

2. Proforma invoice

Clients may sometimes request a proforma invoice, providing an advance estimate of the goods or services they can anticipate from your upcoming delivery and the estimated cost. While there is no formal demand for payment, your clients can budget accordingly before receiving the final invoice upon delivery.

3. Interim invoice

Sometimes, you may provide your client with a large-scale project in a long-term plan. If so, interim invoices enable you to divide the expenses into incremental payments at predetermined project milestones. This approach helps you make manageable client payments while ensuring a steady cash flow in your business.

4. Past due invoice

You issue this once the customer delays payment. Past due invoices remind your client of the standard invoice containing all the information you stated before, with any late payment penalty fees incurred for missing the due date.

How do I Send an Invoice?

After writing an invoice, you must consider how it will reach your customers. The method you use to send your invoices may impact how quickly you will receive the payment. You may use different sending methods to your customers or the same process for all. It's up to you. Ensure the client's preferred communication channel is considered when choosing the technique.

Here are the most used methods of sending an invoice

1. By Post

In specific industries or clients with limited email access during working hours, postal mail might remain a preferred method for sending invoices. However, posting invoices can be slower and less reliable than digital techniques. Potential issues include delays because of postal strikes, longer delivery times, changes in client addresses, and associated charges.

2. Through email

email is the most preferred way of sending invoices. Because it's a quick method to send or receive invoices, ensure you use an up-to-date and accurate email address when using the email. Incorporate a reference to your invoice in the subject line for easy identification by the client in the future. Additionally, include a brief message within the email, emphasising any special instructions.

3. Via invoicing software

Some invoicing software such as PayPal or Sage helps you draft the invoice using a customisable template and schedule and automate the invoicing process. This is helpful when managing a high volume of recurring payments from customers. The software securely sends the invoice to the client, allowing quick payment and streamlining the process for both parties.

Form Your Company with Incorpuk Today

At Incorpuk, we will help you through the company formation process and file your confirmation statements to help your business stay compliant. Whether you're a UK resident or a non-UK resident, our team is ready to provide guidance and help you establish your company in the UK. Contact us here today.

Conclusion

Invoicing is critical to managing a UK limited company; it ensures proper cash flow, minimising payment delays. Suppose you adhere to standardised invoice formats and include essential details like company information, product or service descriptions, and payment terms. In that case, you can streamline your invoicing process and encourage prompt client payments. Using invoicing software and choosing appropriate sending methods further enhances invoice management efficiency.  Do you have any questions about how to create an invoice for your UK limited company? Kindly contact one of our experts here.