What Is an Invoice?

An invoice is a formal document that a business or self-employed person sends to a client to request payment for goods or services provided. It’s essentially a bill that includes:

• Your business name and contact details

• The client’s name and address

• A description of the work or items provided

• The date of the invoice and payment due date

• The total amount owed (including VAT if applicable)

 

What Are Invoices Used For?

Invoices serve several key purposes:

• ✅ Request payment from clients

• ✅ Record income for bookkeeping and tax purposes

• ✅ Track work completed and payments received

• ✅ Provide proof of business activity and professionalism

They’re essential for anyone who’s self-employed, freelancing, or running a small business.

 

How Are Invoices Used in Self Assessment?

Invoices play a role in both income and expenses:

1. Income Tracking

Invoices show how much you’ve earned. You’ll use them to calculate your total turnover for the tax year.

2. Expense Evidence

If you receive invoices from others (e.g. suppliers, subcontractors), they act as proof of business expenses.

 

These expenses help reduce your taxable profit, which means you pay less tax.

For example:

• You earn £10,000 from clients (based on your invoices)

• You spend £3,000 on business costs (supported by supplier invoices)

• Your taxable profit is £7,000

💡 HMRC expects you to keep invoices for at least 6 years after the 31 January submission deadline.

 

Invoices as Business Expense Evidence

When you receive an invoice from a supplier, contractor, or service provider, it becomes part of your business expense documentation. These help reduce your taxable profit and, in turn, lower your tax liability.

To be valid, the invoice should include:

•  Supplier details – name, address, and ideally a VAT number if applicable

• Date of transaction

•  Clear description of goods or services provided

•  Amount paid – ideally broken down into net, VAT, and total

•  Payment terms or confirmation it’s been paid

You’d declare these costs in your Self Assessment and deduct them from your total income to calculate your taxable profit.

How It Works in Self Assessment

Let’s say:

• You earned £40,000 in the year

• You have £12,000 in allowable business expenses, supported by valid invoices

• HMRC accepts those deductions

• Your taxable profit becomes £28,000

This lowers your tax bill substantially and keeps your records HMRC-compliant.

 

Best Practices for Expense Invoices

• ✅ Keep them organised – by date, supplier, or category

• ✅ Store digital and paper copies

• ✅ Use accounting software or Excel to track expenses and link invoices

• ✅ Check they’re complete – missing info may cause HMRC to reject a claim

• ✅ Retain for 5+ years – HMRC can ask for proof long after filing