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Splitting the difference: tax vs. simplified invoice

02.10.2023
Splitting the difference: tax vs. simplified invoice

Every businessman or entrepreneur in Bulgaria is aware of the importance of correct invoicing. Invoices not only facilitate business processes but are also an essential document when reporting to tax authorities. However, many still feel confused or uncertain about the different types of invoices they need to use in different situations. One of the most common questions is, “What is the difference between a tax invoice and a simplified invoice and when should I use one type or the other?” In this article, we will look at the main features of both types of invoice, as well as practical examples of their application.

Tax invoice: main features

The tax invoice is an essential tool in the accounting and tax process in Bulgaria. It is mandatory for transactions between VAT registered persons and must contain all the elements specified in the Value Added Tax Act. In addition to the information on the supplier and recipient, the date of issue and a unique number, it must also include a description of the goods or services, the quantity, the unit price, the total value and the amount of VAT. The correct issue and storage of tax invoices is essential as they serve as proof of financial transactions and may be required for tax and accounting checks.

Simplified invoice: what do we need to know?

The simplified invoice is an alternative to the standard invoice when it is not practical or necessary to comply with all the requirements of the VAT Act. It is usually used for small transaction values or where the seller and buyer are individuals. Although the simplified invoice does not contain all the details of the standard invoice, it should still include basic information such as the names of the parties, the date of the transaction, a description of the goods or services and the full amount. It is important for entrepreneurs to understand when it is appropriate to use a simplified invoice in order to avoid any complications in possible inspections.

Main differences between the tax invoice and the simplified invoice

While both forms of invoices are used in business, they differ in several key parameters. The tax invoice serves as a complete documentary record of the transaction, certifying tax liability and VAT entitlements. It often contains a detailed specification of the goods or services, quantities, prices and the relevant VAT. On the other hand, a simplified invoice is designed to simplify the invoicing process, especially for small transactions, and may lack many of the details available in a tax invoice.

When should we use a particular type of invoice?

The decision whether to use a tax invoice or a simplified invoice often depends on the nature of the transaction and the requirements of the legislation. For example, in large transactions or where both parties are VAT registered, a tax invoice is mandatory to certify the transfer of VAT liabilities. On the other hand, for small sales to end users, a simplified invoice may be more convenient and quicker to issue. However, it is important that businesses consult their accountants or tax advisors to ensure they are using the correct invoice format for each situation.

Typical invoicing errors

When issuing invoices, entrepreneurs often encounter a number of problems. Omitting mandatory details, miscalculating VAT or using the wrong type of invoice for the specific situation are just some of the common problems. These errors can lead to complications in audits and other financial checks.

Legal consequences of incorrect invoicing

Incorrect invoicing, or the lack of it, can have profound consequences for a business. In addition to financial losses from fines and penalties, businesses can face legal issues and reputational risks. This highlights the importance of correct and timely invoicing in accordance with Bulgarian law.

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