Before and after the invoice: how HMRC and the CRA treat pro formas, quotes and receipts

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Authors

Publication Details

Journal
Zenodo (CERN European Organization for Nuclear Research)
Published
2026-09-17
DOI
https://doi.org/10.5281/zenodo.22807202
Primary Topic
Taxation and Legal Issues
Type
article
Field-Weighted Citation Impact
0.00
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article

Before and after the invoice: how HMRC and the CRA treat pro formas, quotes and receipts

InvoiceWorkshop
Zenodo (CERN European Organization for Nuclear Research)
Taxation and Legal Issues
article

Before and after the invoice: how HMRC and the CRA treat pro formas, quotes and receipts

InvoiceWorkshop
article en

Abstract

Scope Small businesses send quotations, pro forma invoices, purchase orders, invoices, receipts and credit notes. These documents often share one layout: the parties at the top, priced lines in the middle and a total at the bottom. Because they look alike, people treat them as interchangeable. The tax guidance examined here does not. This note sets out what two tax authorities say about the documents around an invoice: HM Revenue & Customs (HMRC) in the United Kingdom and the Canada Revenue Agency (CRA). It covers only the pages listed at the end and says nothing about other countries. It also records a few design notes from building InvoiceWorkshop, a browser-based tool that produces these document types, including where that tool falls short of the guidance. This is general information, not legal, tax or accounting advice. United Kingdom: a pro forma is not an accounting document HMRC's internal VAT Trader Records manual deals with pro forma invoices in VATREC9010 and VATREC9020. VATREC9010 starts from what an invoice is for: "The primary function of an invoice is to provide formal confirmation of a specified supply of goods or services." According to VATREC9010, a pro forma may contain some or all of the information an invoice normally contains without doing that job. HMRC notes that pro formas are often used with customers the supplier does not know or whose creditworthiness is doubtful. The page says a pro forma details the goods or services that will be supplied if payment is made, and "provides the document against which payment is invited". The goods or services are supplied only once payment arrives, and a VAT invoice should then be issued for accounting purposes. The page goes on: "A pro-forma invoice, in normal circumstances, cannot be considered to be an accounting document" HMRC adds that it has no place in the records of the business that issues it or the one that receives it. It should be clearly described as a pro forma, preferably marked "This is not a VAT invoice". VATREC9020 sets out what this means for each party: The buyer. Under section 25 of the VAT Act 1994, a claim for input tax depends on the supply being received for business purposes and being supported by "a valid VAT invoice". HMRC says a pro forma or similar document is not acceptable evidence for input tax. The seller. Once the seller receives payment or makes the supply, it must issue "a full VAT invoice within 30 days". The page adds that the tax point then follows the normal rules. Why the payment matters more than the paper The normal rules are in HMRC's VAT Time of Supply manual. They explain how a pro forma, which creates no tax point itself, can quickly lead to one. VATTOS5105 says that "receipt of a payment in advance of the basic tax point will always create a tax point". VATTOS5120 applies this to deposits. A pre-payment or deposit that is meant to form part of the price of an identifiable supply creates a tax point. Security deposits are dealt with separately. So when a customer pays against a pro forma, the payment creates the tax point. The pro forma does not. The same manual makes two further points: Only a proper invoice creates a tax point. VATTOS5210: "A tax point can only be created by the issue of a proper VAT invoice." It defines that as a document which fully complies with regulation 14 of the VAT Regulations 1995. It also says that "An invoice issued for a zero-rated or exempt supply is not a VAT invoice." Preparing an invoice is not issuing it. VATTOS5215 says an invoice creates a tax point only when it is actually issued. For invoices sent by electronic data interchange, that happens when the data is sent, provided the recipient can receive it. In short, UK guidance draws a sharp line between a pro forma and a VAT invoice. A pro forma invites payment but stays out of the accounts. The buyer's input tax claim relies on the VAT invoice. Canada: a list of documents, which need not be a single one The CRA's GST/HST Memorandum 8.4, Documentary Requirements for Claiming Input Tax Credits, takes a different approach. It is not built around one document called a tax invoice. Paragraph 15 lists the kinds of supporting documentation that can back an input tax credit (ITC) claim: an invoice; a receipt; a credit card receipt; a debit note; a book or ledger of account; a written contract or agreement; any record contained in a computerized or electronic retrieval or data storage system; and any other document validly issued or signed by a registrant in respect of a supply made by the registrant on which the GST/HST is paid or payable. Paragraph 33 adds: "There is no requirement that the evidence needed to support a claim for an ITC be contained in a single document." Its example is a service contract that names the supplier and the recipient and sets out payment terms. The amounts charged and the tax appear on separate periodic invoices. According to the memorandum, the documentary requirements are met by the contract and the invoices together. Neither is enough alone. Two points follow for anyone designing documents: Receipts are listed. A receipt appears on the CRA's list in its own right, next to the invoice. Quotations and purchase orders are not. The list does not mention either. The eighth item covers documents issued or signed by the registrant who makes the supply. A purchase order is written by the buyer, so the list alone does not say where it fits. We draw no conclusion here beyond noting that the list does not mention it. What information a claimant needs, which varies with the amount, is outside the scope of this note. What the two approaches share The two authorities work differently. HMRC relies on one named document with set contents, while the CRA accepts any of a list of document types. Both draw the same line, though. The documents that count for tax record a supply, a payment or an agreement that has actually taken place. A pro forma or a quotation is at most a step towards those records. For anyone designing forms, templates or software, that suggests a few practical rules: Keep the document type fixed and visible. HMRC's advice to describe a pro forma clearly as one only works if the heading cannot quietly read "Invoice" in one output format and "Pro forma" in another. Treat converting a pro forma into an invoice as creating a new document. It needs its own number and date. Under the UK guidance, the pro forma stays out of the accounts and the invoice goes in. Record when money arrived, not just when it was requested. Under the HMRC pages above, an advance payment can fix the tax point before any invoice exists. Let documents point to each other. Paragraph 33 of the CRA memorandum expects a contract and invoices to support a claim together. That makes cross-references between documents important. Design notes from building a multi-document tool We built these document types into InvoiceWorkshop's editor. The notes below record where the guidance above shaped the design and where the tool still falls short of it. Conversions create new documents. A quotation, estimate, work order or pro forma can be converted into an invoice. An invoice can be converted into a receipt or a credit note. Each converted document takes a new number from its own document type's sequence. It also stores the type and number of the document it came from, although the editor does not currently display that stored link. Receipts and credit notes take a reference from the invoice. If the invoice has no reference of its own, the receipt or credit note uses the invoice number as its reference. If the invoice already has a reference, such as the buyer's purchase order number, that reference is carried over instead, and the invoice number does not appear in the reference field. This is a gap against rule 4 above. A user who wants both numbers shown has to add the invoice number themselves. A receipt made this way is marked as paid for the full invoice total by default. A credit note also carries the invoice's date and total. Tax-invoice checks cover three countries and never pro formas. The editor checks an invoice against tax-invoice requirements only when the Canadian, Australian or Indian format is selected. The UK format has no such check: nothing tests a UK invoice against the regulation 14 requirements. Pro formas are never checked, because no tax invoice exists yet at that stage. The UK pro forma lacks HMRC's suggested wording. With the UK format selected, an invoice is headed "VAT INVOICE" and a pro forma is headed "Proforma Invoice". The pro forma does not add the "This is not a VAT invoice" wording that HMRC recommends, so users who want it must type it into the notes. Purchase orders belong to the buyer. A purchase order in InvoiceWorkshop is written from the buyer's side. Its second date means "deliver by", not "due". It has a field for the supplier's quote reference and a standard line asking the supplier to quote the PO number on every delivery note and invoice. A purchase order cannot be converted into an invoice, because the invoice is the other party's document. Limits Sources. This note relies on HMRC internal manual pages and one CRA memorandum as they read when we opened them. Internal manuals explain HMRC's own interpretation and can change. Countries covered. We did not examine Australian, Indian or any other guidance for this note, and nothing here should be applied to those countries. Advice. Nothing here says whether a particular document supports a particular claim. For that, read the current guidance or consult a qualified adviser. Sources HMRC, VAT Trader Records manual, VATREC9010: Pro-forma invoices: Introduction. https://www.gov.uk/hmrc-internal-manuals/vat-trader-records/vatrec9010 HMRC, VAT Trader Records manual, VATREC9020: Pro-forma invoices: VAT treatment. https://www.gov.uk/hmrc-internal-manuals/vat-trader-records/

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