Page 5 Chapter 2

CHAPTER 2
Selling Goods and Services

http://www.hmrc.gov.uk/vat/start/register/when‐to‐register.htm).

When a company is registered, it must charge VAT on all its sales (apart from those items at
zero rate and exempt). Again we will look at these in more detail in the Indirect Tax Unit of
the AAT level 3 Diploma. The current rate of VAT is 20% on most items.

An invoice will include:

 The name and address of the supplier.
 The address to which the invoice must be sent.
 The address where the goods are to be sent (if different from the invoice address)
 The invoice has a unique number (essential if VAT is to be charged). The numbers are
sequential so it is easy to trace and easy to see if one is missing.
 The VAT registration number if the company is registered for VAT.
 Customers may be allocated a reference number. This will help identify the customer
particularly if there are a large number of customers. A customer reference number
will be essential if using a computer accounting program.
 The original purchase order number will be shown. This helps reference the invoice
to the purchase order.
 The date of the invoice. This is important as the terms will state how long the
customer has to pay. The tax point has significance when VAT is paid to HMRC. It is
usually the same date as the invoice was raised. We will look at when it is not in the
Indirect Tax Unit at level 3 Diploma.
 There may be a product code (e.g. B1003). This is useful in identifying the product if
there are a large number of products. It is also much simpler to refer to the product
code if for example the product is ‘a box of 100 x 3 inch nails’ It is also essential for
stock control if a computer is used.
 There is a precise description of the goods and the quantity should be the same as
the purchase order.
 The price should be shown both per unit and for the total.
 Discounts may be offered for regular customers or for purchasing goods in bulk. This
is usually expressed as a percentage and is taken off the total before the VAT is
calculated.
 If an invoice mentions the net amount it means that this is the amount before VAT
has been added. (The amount after VAT has been added is referred to as the gross
amount.)
 VAT is calculated on the net amount at the current rate and the rate appropriate to
the goods sold.
 A total for the invoice will be shown which included the goods (less any discount)
plus the VAT charged.

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