A self-billing arrangement is an agreement between a supplier and their customer. One of its benefits is that you don’t need to worry about writing an invoice and sending it to your customer. The invoice includes the company name, the registered office address and any VAT number. Self-billing invoices have to be marked with ‘Self-billing’ as their reference by law.
If an agency handles the self-billing on your behalf it is up to you to ensure the invoices are correctly issued. The whole set-up is an arrangement that has a lot of legal weight to it and will need to be agreed upon by your company or an agency.
Who can issue a self-billing invoice?
It is the customer who prepares the self-billing invoice before forwarding a copy of it to you or their supplier along with the payment. You should get your customer or your supplier to agree to produce such an invoice.
How VAT for self-billing works
When it comes to VAT self-billing, you must give the customer a VAT invoice, this is regardless of whether you are supplying reduced or standard rate services or goods to someone else who is VAT registered.
A VAT invoice shows specific information about the goods or services you’re supplying. All of your customers need their VAT invoices as evidence of the VAT you have charged them. If you supply goods or services that are zero-rated for VAT, you do not have to issue a VAT invoice. Additionally, you will not be required to issue a VAT invoice for supplying to customers who are not VAT-registered.
It is common for businesses to issue a VAT invoice only to those who ask for one. This is because you cannot tell if the customer is VAT registered.
Pros & Cons of Self-Billing and Points to Watch
It makes invoicing so much easier
Accounts staff work with easy to use purchase documentation
There’s a risk of error
The incorrect VAT rate may be used
Invoices may also be raised
Points to watch
It’s vital that as a supplier you do not use self-billed invoices as if they were purchase invoices.
If you’re a customer, you will need to check the VAT registration numbers.
If you’re a supplier or customer, you will also need to:
Check that all of the conditions for self-billing are met.
Ensure that you have good communication.
Ensure that the documents reflect the transactions and the right VAT rate is used.
The audit trail is clear.
Documentation is available when HMRC wish to inspect it.
They should include the following details:
The customer’s name and VAT number along with the supplier’s name and VAT number.
A statement that suggests the agreed date of payment.
An agreement to make a new self-billing agreement should the VAT registration change.
An agreement to inform the supplier if the invoices are to be outsourced.
An agreement by the supplier (Self-billee) to accept the invoice until a specific date or until the contract ends.
The date and signature and who each party is signing on behalf of.
What are the Main Rules for Self-billers?
Self-billing arrangements can be set up with suppliers as long as the following conditions are met:
You must enter into an agreement with every supplier.
You must review the agreements regularly.
You must keep accurate records of the suppliers that allow you to self-bill them.
You must make sure that all of the invoices contain accurate information and they’re issued correctly.
Suppliers can be based in the UK, in the European Union or countries outside the EU. Invoices must not be issued to any supplier who has made a change to their VAT number unless a new agreement has been prepared.
If a supplier is no longer registered for VAT you can self-bill them but you cannot issue VAT invoices as the self-billing arrangement is no longer covered by VAT regulations.