Blog · South Africa and the UK
VAT on purchase orders in the UK
Quote each line on a UK purchase order excluding VAT, then show the VAT and the total including VAT underneath. Put your VAT registration number on the order if you’re registered, and leave it off if you aren’t. The purchase order is not a tax document: the supplier’s VAT invoice is, and HMRC sets what that invoice must contain. This is how things commonly work; confirm the specifics with your accountant or HMRC.
Lines and limits excluding VAT
Most business-to-business prices in the UK are quoted before VAT, so a purchase order written the same way matches the quote line for line. The standard rate of VAT is 20%, and a typical order shows three figures at the bottom: the net total, the VAT, and the gross total the supplier will invoice.
Approval limits are usually set on the net figure too. A VAT-registered buyer can normally reclaim the VAT it pays on business purchases, so the net amount is the real cost to the business. A limit of £1,000 then means £1,000 of spending, not £1,000 plus tax. Write the rule into the policy (“limits are excluding VAT”) and you avoid an argument every time an order lands near a limit. How to set approval limits covers the rest of that decision.
A worked example
An office manager orders six chairs, six desk lamps and delivery. Each line is priced excluding VAT, with VAT at the standard 20% alongside.
| Line | Net | VAT at 20% | Gross |
|---|---|---|---|
| 6 office chairs at £145.00 | £870.00 | £174.00 | £1,044.00 |
| 6 desk lamps at £22.50 | £135.00 | £27.00 | £162.00 |
| Delivery | £45.00 | £9.00 | £54.00 |
| Total | £1,050.00 | £210.00 | £1,260.00 |
Reading the example
With a £1,000 limit excluding VAT, this order is above the office manager’s authority, because the net total is £1,050, so it goes to the next approver. The £1,260 is what leaves the bank account. Whoever pays the invoice needs to see that figure on the order, so the invoice holds no surprises.
The supplier’s invoice may differ from your order by a penny, depending on whether VAT is worked out per line or on the total. That’s normal. The invoice is the figure that counts for VAT; your order is the figure you agreed to spend.
Your VAT number on the order
If your organisation is VAT registered, print its VAT registration number on the purchase order alongside its legal name and address. It tells the supplier exactly which registered business is buying, so the invoice is made out to the right one. That matters most when a group has several companies, each with its own number: an invoice addressed to the wrong company is one its finance team can’t use. Some supplies also depend on whether the customer is registered, and the number on the order answers that before anyone asks.
If you aren’t registered, as with many small charities, some schools, and businesses below the registration threshold, leave the VAT number off. Never borrow a number from a parent body or a sister company. Many unregistered buyers print a short line such as “Not VAT registered” so the supplier doesn’t ask, and a charity can show its charity number instead. An unregistered buyer usually can’t reclaim VAT, so the gross total is its real cost: a £1,000 limit excluding VAT means up to £1,200 of cash. The charities and schools pages cover how those buyers set limits.
The VAT invoice is the supplier’s document
A purchase order is your commitment to buy on the terms it states. It is not a VAT invoice, and you can’t reclaim VAT on it, or on a quote or a pro forma. Normally it is a valid VAT invoice from a registered supplier that supports a reclaim, and HMRC sets what that invoice must show, including the supplier’s VAT registration number.
So the order’s job is to agree the price before the spending happens, and the invoice’s job is to record the tax. Keep the two apart in your process: approval is about the net amount, and the VAT is checked when the invoice arrives. Purchase order vs invoice explains the difference in more detail.
When a quote is silent on VAT
A quote that just says “£600” leaves the expensive question open. Before you raise the order, check:
- Is it plus VAT? Ask the supplier in writing. Trade quotes usually exclude VAT; prices aimed at the public usually include it.
- Is the supplier VAT registered? A registered supplier shows its VAT number on its quotes and invoices. If it isn’t registered, it won’t charge VAT, and £600 is the whole price.
- If the price includes VAT, divide by 1.2 to find the net: £600 including VAT is £500 net plus £100 VAT. Put £500 on the order line, so it compares fairly with the limit and with other quotes.
- Does the supply carry a different rate, or none? Some goods and services are taxed at a lower rate or not at all, and in some trades, such as certain construction services, the customer accounts for the VAT instead of the supplier. The supplier’s invoice settles which applies; your accountant can tell you what to expect.
Confirm the specifics
VAT has exceptions for particular goods, particular buyers and particular trades. This article describes how purchase orders commonly handle VAT; it isn’t tax advice. Check anything specific to your organisation with your accountant or with HMRC, then write the answer into your purchasing policy so every order is written the same way. How to write a purchase order covers the rest of the document.
Questions
Should a purchase order include VAT?
Show it, but quote each line excluding VAT. List the net total, the VAT and the gross total at the bottom, so the approver sees the cost to the business and the person paying sees the cash.
Can I reclaim VAT using a purchase order?
No. A VAT-registered buyer normally reclaims VAT with the supplier’s VAT invoice, not with a purchase order, quote or pro forma. HMRC sets what a valid VAT invoice must show.
Do I need my VAT number on a purchase order?
It isn’t the document HMRC relies on, but if you’re registered it helps the supplier invoice the right legal entity. If you aren’t registered, leave it off, and never use another organisation’s number.
Are approval limits before or after VAT?
Usually before VAT, because a registered buyer reclaims the VAT and the net figure is the real cost. An unregistered buyer can’t reclaim it, so it should set limits knowing the gross is 20% higher at the standard rate.