Receiving a VAT-only bill can be confusing if you are not expecting it, but it is usually a legitimate correction or adjustment from your supplier. It often happens when VAT has been missed from a previous invoice, or when a supplier’s VAT registration has been delayed or backdated.
In some cases, it may come from an insurance company covering repairs or replacements, where VAT needs to be charged separately. Understanding why you have received a VAT-only bill and how to process it correctly ensures your accounts remain accurate and compliant with HMRC rules.
Why have I received a VAT-only bill?
Receiving a VAT only bill from a supplier may seem unusual. However, there are some genuine reasons this may happen, such as:
- Your supplier’s VAT registration may have been delayed, or may have been backdated, resulting in the supplier needing to charge VAT on already-issued invoices.
- Your supplier has made an error on a previous invoice, omitting to charge 20% VAT, and raises a VAT-only invoice to correct the error.
- You receive a VAT-only bill from an insurance company. This is usually when the insurance company has arranged repairs/ replacement goods directly. As the insurance company cannot reclaim the VAT, a bill is sent for the VAT only element.
VAT bill checks
Before processing, it is important to check that the supplier bill includes the following, to be deemed a valid VAT invoice:
- Date of supply/ issue of document
- VAT registration number
- The supplier’s name and address
- The customers’ name and address
If correcting a previous bill, you would also expect the bill to include reference to the previous invoice number, so you can check that VAT was not previously charged.
The VAT on a VAT-only bill can be reclaimed as input VAT, just like the VAT on a regular supplier bill. However it is important to process it correctly in Xero, in order that the input VAT is recorded on your VAT return.
How do I process a VAT-only bill in Xero?
The easiest way to post a VAT-only bill in Xero is post a two line bill, as follows:
- In the bill, select Amounts are ‘tax exclusive’ at the top right below the total amount field.
- Calculate the net amount of the bill (the amount of VAT/0.2) – in this example £1,000 is the net amount to post for a VAT only bill of £200.
- Enter this ‘net amount’ on line one, selecting a tax rate of 20% (VAT on expenses).
- Enter the same net amount as a negative value on the second line, selecting a tax rate of ‘exempt expenses’
- Fill in the contact, date and reference dates and approve the bill as usual.
The two amounts of £1,000 net off each other in the accounts and on the VAT return, leaving an input VAT claim of £200.
Read our full guide on accounting for value added tax (VAT) to learn more.
If you need help with this, or with other advice, then please get in touch with our accounting team.