Value-added tax is charged on most sales in over 170 countries — across the EU, the UK and much of the world. A VAT-registered seller adds the tax to the sale price, shows it as its own line on the invoice, and periodically pays the collected tax to the authority — after deducting the VAT it paid on its own purchases. Each business taxes only the value it added; the final consumer bears the full amount.
Because the invoice is the document that proves both the charge and the deduction, VAT systems regulate invoices heavily: a valid VAT invoice typically must show the seller’s VAT registration number, the rate applied, and the tax amount separately from the net price. The specific field list is set nationally.
Why It Matters
If you are VAT-registered, your invoice is a tax document, and an incomplete one can cost your customer their deduction — a fast way to lose a B2B client’s goodwill. If you sell across borders, VAT decides pricing too: whether your quoted price is tax-inclusive, and whether the buyer self-accounts under a reverse-charge mechanism instead of you charging VAT at all.
Example
A UK consultancy bills £2,000 for a project at the 20% standard rate. The invoice shows net £2,000, VAT £400, total £2,400, plus the consultancy’s VAT number. The business client pays £2,400 and reclaims the £400 on its own VAT return — but only because the invoice carries the fields that make it a valid VAT invoice.
Frequently Asked Questions
What is the difference between VAT and sales tax?
Sales tax (the US model) is charged once, at the final sale to the consumer. VAT is charged at every stage, with each business deducting the VAT it paid — the end result for the consumer is similar, but the invoicing and compliance mechanics are very different.