An invoice is a legal document that forms the foundation of your company’s bookkeeping and is more than just a pricing list. Understanding the subtleties of VAT (Value Added Tax) and invoice structuring is crucial for maintaining compliance with tax authorities, regardless of whether you are a freelancer or a developing organization.

Why the Information on Your Invoice Is Important

A well-prepared invoice guarantees quicker payment and protects you from tax audits. In the majority of countries, including the EU and the UK, an invoice must include specific information to be considered legally valid:

• Invoice number: a unique, sequential number used to track payments.
• Tax point (date): the date the service was rendered or the invoice was issued.
• VAT registration number: this must be clearly displayed if your company is registered for VAT.
• Clear breakdown: a distinction between the net amount and the VAT amount.

How VAT Is Calculated

VAT is calculated as a percentage of the subtotal. Despite its apparent simplicity, rounding errors can cause accounting issues.

Formula:$$\text{VAT Amount} = \text{Subtotal} \times \left(\frac{\text{VAT Rate}}{100}\right)$$$$\text{Total} = \text{Subtotal} + \text{VAT Amount}$$

Common VAT Rates Across Europe

VAT rates vary significantly across countries. For example:

• Germany: 19%
• Italy: 22%
• United Kingdom: 20%

Always verify the current VAT rate in the country where your business is registered before sending your invoice.