Going global: how to invoice customers outside the UK

The world is more connected than ever and that means you might find potential customers contacting you from halfway across the world, rather than just those within the UK. This can bring exciting opportunities to grow your customer base and your income - but it might also bring baggage, like additional rules to learn and new decisions to make.   

We’re here to help you carry that baggage, answering some of the biggest questions on invoicing overseas customers and summing up the rules you need to follow. Now go forth, and take your beautiful business off into the world! 

What’s in this guide:

• How do I invoice customers outside the UK?
• How do I decide which currency to invoice in?
• What do I need to do if I am VAT-registered?
• Is a standard VAT invoice the only paperwork I need to prepare?
• How should I ask to be paid by customers outside the UK?
• How can I protect myself from late-paying customers outside the UK?
• How should I pay tax on income from outside the UK?

How do I invoice customers outside the UK?

You can start with your standard UK invoice template - with a couple of key additions. You’ll need to include a “place of supply”, which is the country you’re supplying your products or services to. This might be where you’re sending goods to, or where you’re carrying out your service, or possibly where your customer is based - but your accountant will be able to give you specific guidance here.

You’ll also need to choose which currency you’re going to invoice in. Each invoice should be in only one currency, so you won’t be able to charge different items in different currencies. 

To see an example of a standard invoice template, you can take a look at our guide.

How do I decide which currency to invoice in?

For UK-based businesses, you’ll normally choose either pounds sterling (GBP) or the customer’s own currency to charge for your services or product. There are also some occasions where you might prefer to pick an international standard, like the US dollar or the Euro.

What do I need to do if I am VAT-registered?

If you’re VAT-registered, the rules will depend on whether you’re selling goods or services. “For sales of services, you may also need to bear in mind what it is you’re selling, and whether you’re selling to businesses or consumers, because the rules can be different,” says Emily Coltman FCA, Chief Accountant at FreeAgent. 

If you sell goods

Sales of goods outside the UK (or outside the UK and EU, if your business is based in Northern Ireland) would be zero-rated for UK VAT so long as the goods physically left the UK and you have evidence to prove this. HMRC explains the conditions for zero-rating these sales in full.

If you sell services

If you’re selling services rather than physical goods, then there are more considerations to take into account.

If your customer is a business, then the VAT reverse charge would apply. That means that it’s your customer, not you, who would need to account for any VAT on the supply. You would need to avoid charging any UK VAT on the sale, but instead mark the invoice with wording such as “reverse charge supplies” or “the VAT reverse charge applies”, so that your customer knows they need to account for the VAT, if they are themselves VAT-registered in their own country.

If, on the other hand, your customers are consumers rather than VAT-registered businesses, then you might need to charge VAT as if they were based in the UK. Alternatively, you might have to charge local VAT based on where the customer is benefiting from the service. HMRC explains the rules for charging UK or local VAT in more detail.

Is a standard VAT invoice the only paperwork I need to prepare?

No - if you’re selling goods overseas, you’ll also need to prepare an export invoice, also referred to as a commercial invoice, for customs documentation. 

Each shipment has to have a commercial invoice included. Because a commercial invoice is used primarily for getting the shipment through customs, it’s very different from a standard UK invoice for sales of goods. It is also used in case you or your customer need to make an insurance claim on the shipment.

The information on a commercial invoice needs to include information such as the weight of the goods in the shipment, the type of packages, and transport details. Take a look through the full list of information to include on a commercial invoice if you need to produce one of these.

How should I ask to be paid by customers outside the UK?

Payment terms

Firstly, you need to decide on your payment terms. If you sell to individual customers (B2C), the standard terms are usually payment in advance (i.e. your customer pays you before they have received the product or service) - although Pay in 3, a payment agreement where the customer pays in three instalments, is becoming more common in retail. 

If you sell to businesses (B2B), you will likely need to agree payment terms with each customer in your contract or purchase agreement. The main options you have are:

• payment in advance (PIA)
• open account (if exporting goods)
• payable on receipt
• net payment terms (i.e. 14, 30 or 60 days after invoice date)
• bank collection

The option that offers you the most security is payment in advance, as you receive payment before providing your product or service. However, this could feel like a risk for your customer, which is why open account or net payment terms are extremely common. You may agree with your customer to be paid after delivery or completion of the project, or a set amount of days after you have sent an invoice.

Different industries may also have standard net payment terms - the standard in the UK is 30 days after the invoice is sent, but small businesses may prefer 14 days as they might be working with a tight cashflow. 

The final option, bank collection, lets the bank collect payment on your behalf. Direct Debit is a good example, allowing you to take regular payments directly from the customer’s bank account. This is suitable for subscription-based businesses or recurring project work. The customer needs to approve the setup of a Direct Debit and can cancel it at any time. 

Payment methods

There are two main options for taking payment outside the UK: direct bank transfers and using a payment provider.

For bank transfers, you’ll have to provide the name on your business bank account, the name of your bank, an IBAN (International Bank Account Number), and a SWIFT BIC (Bank Identifier Code). 

What are the advantages?

1. They’re easy to set up.
2. The money is normally processed quickly (between one and five working days).
3. It keeps the payment secure. 

What are the disadvantages?

1. Banks will normally add a small fee for receiving foreign currencies (check with your bank for their rules on receiving international payments).
2. If a currency exchange is needed, your bank may apply a margin (a markup on the base exchange rate).
3. A payment provider may look more professional when taking B2C payments.

You can also choose to be paid using a payment provider, like PayPal or Stripe. You’ll need to sign up and create an account with one of these first, but once you have them up and running you can easily send over a payment link to customers along with your invoice.

What are the advantages?

1. The payments are secure.
2. They are B2C-friendly.
3. Popular payment providers increase trust thanks to their name recognition.
4. They might offer additional features, like auto-reconciliation in your accounting software or Pay in 3.

What are the disadvantages?

1. Most payment providers charge fees - either per transaction or per month.
2. There may be limits on the size of payment you can take through them (find out more on the payment provider’s website).

Do you use FreeAgent? You can check whether your payment provider integrates with us and how that could make your accounting admin easier.  

How can I protect myself from late-paying customers outside the UK?

You’ll likely want to be more careful with taking payments outside the UK since it could be harder to physically visit them. The best case scenario is if you can take payment in advance, but this isn’t always feasible. Maybe you can take a deposit up front, or take their bank details to provide security. If they aren’t willing to offer you assurance, it could be a red flag.

Your payment terms and any contract that you’ve agreed with them will legally require customers to pay on time, but it can be complicated enough to get UK companies or individuals to pay, let alone those in a different country. 

If they seem to be entirely refusing to pay, or ignoring your messages… The easiest thing for your business might be to hire an international debt collection agency, as they will be well-practised dealing with local legislation and debt collection protocols. In some cases, it could be possible to bring a case to court in the UK, even if the debt is held by an individual or company overseas.

In many cases, the threat of legal action might be enough to secure payment. Take a look at our blog for email templates for overdue invoice payments.

How should I pay tax on income from outside the UK?

Self Assessment

If you’re a sole trader, and your overseas income is part and parcel of your overall business income (i.e. you don’t have a foreign branch of your business) then any income from customers outside the UK should be included in the Self Employment pages of your Self Assessment, along with all your other business income. You’ll pay tax on it just the same as your income from UK customers.

If you’ve had any international “withholding” tax deducted from your income, speak to your accountant about where this tax, and the income on which you earned it, should be entered on your tax return.

Corporation Tax and end-of-year reporting

If you’re the director of a limited company and the overseas income is part and parcel of your UK company’s income (i.e. your company doesn’t have a foreign branch) then you’ll want to include any income from customers outside the UK in your company’s accounts and on its CT600 form along with the company’s other income. 

“Your company won’t pay tax on it any differently to income from UK customers,” says Emily Coltman FCA, “but speak to your accountant if you have already suffered local tax (other than sales tax like VAT) on your company’s foreign income so that you can claim any available relief for this tax and avoid the company paying tax twice on the same income.”

VAT

If your business is VAT-registered in the UK, you’ll need to make sure you’ve charged any VAT correctly, in accordance with your accountant’s advice and the guidance above.

It’s simple to do this in your FreeAgent account: you’ll be able to select the relevant option when creating an invoice or explaining a bank transaction. Take a look at our Knowledge Base articles on recording the sale of services or recording the sale of goods outside the UK to learn more. 

What currency should I use to report my sales outside the UK? 

You’ll need to convert all your income into pounds sterling (GBP) before submitting your tax return. 

As the exchange rate between currencies isn’t static, you would usually calculate the GBP value as at the date you issue your invoice. You need to use an exchange rate from a reputable source - either HMRC, your bank, or a financial institution.