If you decide to trade as a limited company contractor, every time you complete a payment period (typically weekly or monthly), you will have to submit an invoice to your agency or end-client before payment can be made. This guide includes downloadable templates.
Given that bad cash-flow management is the biggest cause of failure for UK firms, it is important that you format your invoices correctly, otherwise you could suffer delays before payment is released.
To comply with the law, you must ensure that you supply the following information on all your invoices. There are additional rules if you are VAT registered (as most contractors are). We have included all the mandatory fields below.
What details must you include on invoices?
- Unsurprisingly, you must use the word ‘Invoice’.
- A unique identifying invoice number, which must be sequential (if you are VAT registered).
- Your limited company name.
- Your company’s registered number (on your certificate of incorporation).
- The name of the recruitment agency or client.
- Your company address and contact details.
- The recipient’s address and other relevant details.
- You must clearly describe what you are invoicing for, e.g. IT services – 35 hours (units) at £40 per hour.
- The date the invoice was issued.
- The ‘tax point’ (if the date of supply was different from the date when you issued the invoice).
- The total amount charged, net and gross of VAT.
- The rate of VAT used (the standard rate is 20% for contractor services).
- Any reference number supplied by the agency or client (such as a PO number).
- Include any expenses (including the VAT element) which have been pre-agreed with the client/agency on the invoice. Keep this element separate from your contract work details.
- How you would like the funds to be transmitted to your company bank account (see below).
- Your payment terms (see below).
To ensure swift payment, you should also include your company’s bank account sort code and account number. Some clients still pay via cheque, so make sure you specify that you prefer electronic payment.
If no payment terms are specified, the law assumes that a standard 30 day payment period exists. However, most agencies and clients pay faster than this. Find out what the standard payment terms are before you start your contract, and specify the period on your invoices (7 days, 14 days, etc.)
All VAT invoices have to be issued with a sequential, unique number, which also makes your accounting far simpler to keep tabs on. For example, if you are working for the agency Computer Personnel Ltd your first invoice number could be CP001, the next CP002, etc.
Don’t forget to enclose your signed timesheet with your invoice (assuming the procedure is in place to email / post them simultaneously).
Your accountant may provide you with online software which will allow you to invoice directly from your browser, or alternatively try one of the new breed of online accounting software products on the market. Some of these products (such as FreeAgent, which we use at ITC) are massive time-savers, and the moment you submit your invoice, your realtime accounts will be updated accordingly.
When you’re dealing with an agency or client for the first time, we also recommend you take down the details of the accounts department (ideally a specific contact), in case there are teething problems.
In the unlikely event that your invoice is not paid in time, try our dedicated article on tackling late payment problems.
VAT invoice template
You can also download a sample limited company VAT invoice here.
If you’re not supplying professional services (i.e. where you charge by the hour/day), simply change the columns to suit the type of product or service you provide to customers/clients.
Visit the HMRC site for details on what a VAT invoice must include, by law.