How do I charge VAT when my VAT registration isn't through yet?

Consultancy owner asks:

We registered for VAT at the beginning of the month, but our VAT registration number isn't through yet. I know we're liable for VAT from then, but I need to raise our monthly invoice now and I don't have a VAT number. What do I do?

Acumenica answers:

HMRC allows for the issuance of an initial invoice with a 20% increase in anticipation of VAT charges for businesses not yet VAT registered but expecting to exceed the VAT threshold. For example, if you secure a £100,000 service contract on May 1 and anticipate surpassing the VAT threshold within the next 30 days, you should register for VAT with an effective date of May 1. Consequently, any invoices from that date should include VAT. You should inform your customer that you will be adding 20% to the original contract amount, resulting in an invoice for £120,000.

Once you receive your VAT number, you can reissue the invoice to show the total £120,000, which includes the £20,000 VAT. Your customer won't need to pay more but can claim back the £20,000 as VAT on their next return.

However, it's common for clients to prefer an initial net amount invoice followed by a VAT-only invoice upon VAT registration receipt. While this method is also valid, there's a risk that clients might refuse to pay the VAT-only invoice, potentially leaving you financially exposed.

We recommend discussing and agreeing on the preferred invoicing method with your client to ensure clarity and avoid disputes.