What is a proforma invoice? What it is for and why it is not a VAT invoice

A proforma invoice is a document, laid out like an invoice, that tells a customer what you propose to supply and what it will cost before the supply has been made. HMRC’s VAT guidance describes it as a document used to offer goods or services to a potential customer.

It is not a term defined in one rule book, and you will see it written as “proforma”, “pro forma” and “pro-forma”. What matters in practice is how it is treated for VAT and how it differs from the invoice you issue once you have delivered.

No. HMRC’s VAT guide says a proforma invoice used to offer goods or services to a potential customer is not a VAT invoice. Three things follow from that guidance:

• The proforma should be clearly marked “This is not a VAT invoice”.
• Your customer cannot use it as evidence to reclaim input tax, even if it shows all the details a VAT invoice would.
• When you actually make the supply, you must issue a proper VAT invoice.

So a VAT-registered customer who needs to reclaim the VAT has to wait for the real invoice. If you are the buyer, do not put a proforma through your VAT return as if it were one.

A full VAT invoice must show a set list of details that HMRC publishes in its VAT record keeping notice. You must use VAT invoices if you and your customer are both VAT registered, and you must issue one within 30 days of the date you make the supply.

• A sequential number, based on one or more series, that uniquely identifies the document
• The time of the supply
• The date of issue, where it is different from the time of supply
• Your name, address and VAT registration number
• The name and address of the customer
• A description sufficient to identify the goods or services
• For each description: the quantity of goods or extent of services, the rate of VAT and the amount payable excluding VAT
• The gross total amount payable, excluding VAT
• The rate of any cash discount offered
• The total amount of VAT chargeable, in sterling
• The unit price

Where the charge is £250 or less including VAT, a simplified invoice with fewer details can be issued. HMRC’s notice also describes a modified VAT invoice, which shows VAT-inclusive values. Check the notice before relying on either.

There is no official list for a proforma, so the sensible approach is to show what the final invoice will show and to mark the document clearly as a proforma. GOV.UK’s list of what any invoice must include is a good base:

• A unique identification number
• Your company name, address and contact information
• The company name and address of the customer
• A clear description of what you are charging for
• The date the goods or service will be, or were, provided
• The date of the document
• The amounts being charged, the VAT amount if applicable and the total

Add the words “Proforma invoice” and HMRC’s wording, “This is not a VAT invoice”. As a matter of general practice, businesses also give a proforma its own reference, separate from the sequential numbers used for real invoices, and state how long the price holds.

A quote offers a price, a proforma sets out the proposed sale in invoice form before it happens, and an invoice records a supply and asks for payment. The VAT rows below follow HMRC’s guidance; the rest describes general business usage, which varies between firms.

Businesses generally use a proforma when a customer needs an invoice-style document before the sale has happened. The situations below are common practice, not rules, and HMRC’s guidance only describes the document as an offer to a potential customer.

• Asking for a deposit or payment in advance, typically from a new customer without a credit account
• Giving a buyer’s finance team a document to approve before they raise a purchase order
• Confirming price and terms before you commit stock or production time
• Supporting export or import paperwork, where the requirements depend on the country involved

For small repeat orders from established customers, most businesses skip the proforma and invoice once they have delivered.

A customer can pay against a proforma, and paying in advance is one of the main reasons businesses send one, but the proforma does not replace the invoice. Once the supply is made you still have to issue a proper VAT invoice.

Taking money before you supply can affect when VAT has to be accounted for. That timing is a question for your accountant or HMRC’s guidance, not something to assume from the document’s name.

Whether a proforma commits either side is a separate, legal question. It depends on what you and the customer have actually agreed, not on the heading of the document, so take legal advice before relying on one in a dispute.

The common mistake is treating a proforma as if it were the invoice, on either side of the sale. These are the ones to watch for:

• Leaving off the “This is not a VAT invoice” wording
• Numbering proformas in the same sequence as real invoices, which confuses the sequential numbering a VAT invoice needs
• A buyer trying to reclaim VAT on the proforma
• Not issuing the VAT invoice within 30 days of making the supply
• Leaving the price open-ended, with no date after which it may change

A proforma brings no cash in by itself: money arrives when the customer pays, which may be in advance or weeks after the real invoice. The gap between paying your own costs and being paid is what working capital has to cover.

If you invoice on credit terms and no payment date is agreed, GOV.UK says a business payment is late 30 days after the customer gets the invoice, or after delivery if that is later. Put the expected receipt in your cash flow forecast in the month the money should land, not the month you send the document.

Tax bills fall due on fixed dates whether or not your customers have paid. Our guide to paying a VAT bill sets out the VAT deadline. Invoice finance is funding against unpaid invoices you have issued; which documents a provider will fund is for the provider to say.

Capzy is a credit broker, not a lender, and is paid by the lender. We do not prepare invoices or give tax or accounting advice.

If waiting to be paid is squeezing your cash, you can check your funding options with a soft search that does not affect your credit score. A full application to a lender may involve a hard search, and any offer is subject to status and lender criteria.