When you’re running a business, whether as a sole trader or a limited company, invoicing is one of the most important tasks you’ll handle. It’s easy to make mistakes, and these small errors could lead to big problems with your bookkeeping and compliance further down the line.
So, are your invoices compliant? Let’s go over the essentials to make sure your invoices meet all the requirements.
What is an invoice?
Before we get stuck into talking about how to make your invoices complaint, let’s quickly make sure we’re on the same page about what an invoice is. An invoice is a document that records the goods or services you’ve provided to a client and requests payment for them. Some see it as just a payment request, but it’s actually a big part of your business records.
Accurate invoicing is key not only to getting paid on time but also to staying compliant with legal requirements. If your invoices don’t meet these standards, you risk delays, accounting errors, and even penalties from HMRC – not good!
Invoicing as a sole trader: The essentials
If you’re a sole trader, your invoicing process might seem straightforward, but there are specific rules you need to follow to stay compliant. So, what does a correct sole trader invoice look like? Well, here’s a checklist:
A unique invoice number: Every invoice should have its own unique identification number. This number must be sequential, meaning they follow in order without skipping or repeating, so they’re easy to track.
Your business name: If you trade under your own name, that’s fine, but if you use a different business name, that name should be clearly displayed on your invoice.
Your address: Include the address where legal documents can be delivered to you, especially if you use a business name.
Client details: Make sure to include the name and address of the client or company you’re invoicing. This information is required for compliance.
A detailed description of the goods or services provided: Be specific about what you’ve delivered, whether it’s a product or service, as this helps to avoid any confusion later on.
Dates: Both the date of the supply (when you provided the goods or services) and the date of the invoice should be included.
Payment terms: Make it clear when payment is due (e.g., “within 14 days of receipt”) and ensure this is agreed upon beforehand.
Bank details: If you’re accepting bank transfers, make sure to include your full bank name, account name, account number, and a reference number.
VAT (if applicable): If you’re VAT registered, show the VAT amount separately. If not, it’s still helpful to note that VAT doesn’t apply to your invoice. Don’t forget that if you’re VAT registered, you must show your VAT number on the invoice.
Total amount owed: Don’t forget to clearly state the total sum your client needs to pay.
By including all of these details, you ensure your invoices are compliant and professional.
Limited companies: Additional requirements
For limited companies, invoicing comes with a few extra requirements beyond those for sole traders. Alongside the basics listed above, you also need to include:
Company registration number: This is a legal requirement for limited companies and helps to identify your business. You received this number when you registered with Companies House.
VAT number: If your company is VAT registered, your VAT number must appear on every invoice.
Registered office address: You’ll also need to include the address of your registered office. This is your official business address as listed with Companies House, and it might differ from your trading address. If the registered office is different to the trading address, always add the trading address where appropriate so that any correspondence goes directly to the business. It also helps if clients want to meet at your trading offices.
By including these extra details, you can make meeting your limited companies legal invoicing requirements a total breeze.
Common invoicing mistakes to avoid
Editing invoices after sending
One of the biggest blunders is trying to edit an invoice after you’ve already sent it. For example, if a project changes after you’ve sent the invoice it might seem easier to just update the original. However, once an invoice is issued, it shouldn’t be changed, as this affects your audit trail. The correct thing to do is to issue a credit note to adjust the original invoice or create a new one. This keeps your records accurate and ensures transparency.
Incorrect invoice numbers
Every invoice needs to have a unique, sequential number. If you skip numbers or reuse them, it can create confusion and make it difficult to track payments or maintain an accurate record. If your software doesn’t generate these automatically, it’s important to double-check each time.
Unclear descriptions
Vague descriptions of the products or services you’re billing for can lead to misunderstandings, so make sure to clearly explain what was delivered or completed. This helps avoid disputes and ensures the client knows exactly what they’re paying for.
Not following up on overdue payments
Sending an invoice is just the first step to getting paid. If a client hasn’t paid by the due date, it’s important to follow up with a friendly reminder. Many invoicing platforms can send automatic reminders, which makes it much easier to manage late payments without having to chase clients directly.
How automating invoices can help you stay compliant
Managing invoices can get overwhelming, but automation tools can help you to simplify the process as well as stay compliant. Platforms like Xero or Invoice2Go can handle much of the work for you. They help ensure invoices are sent on time, track payments, and follow up on overdue bills. Automation also reduces the chances of errors like incorrect invoice numbers or missing details.
Make sure your invoicing platform is properly connected to your accounting software, though. For example, if Invoice2Go isn’t synced with Xero and you make changes outside of Xero, it can create accounting issues and confusion.
If you have questions about invoicing, or any aspect of your finances, please get in touch with the Trinity team. We’d love to help!
