Usually, it’s the supplier who issues a VAT invoice; but in some circumstances, the customer prepares the invoice instead and gives the supplier a copy. This system is called ‘self-billing’. Any business can use this procedure, so long as certain conditions are met. Self-billing is an agreement between businesses, which is most commonly found in the building and haulage industries where large businesses often have many smaller sub-contractors.
How Do I Start Using Self-Billing?
There is no requirement to obtain HMRC’s prior approval before starting to operate self-billing. Any business can use self-billing provided the arrangements meet the legal conditions laid down in SI 1995/2518, reg 13(3) and in VAT Notice 700/62 (September 2014): Self Billing. HMRC recommend that a self-billing agreement should be reviewed every 12 months. At the end of that period, the business will need to review the agreement so that it can provide HMRC with evidence to show that its supplier has agreed to accept the invoices raised on its behalf and remains VAT-registered. However, if there is a business contract with the supplier that includes the self-billing agreement in its terms, it may not need to make a separate selfbilling agreement. In these circumstances, the selfbilling agreement would last until the end date of the contract, and it would not need to review the selfbilling agreement until the contract had expired.
Why Use Self-Billing?
The advantages of self-billing are:
- accounting staff will be working with uniform purchase documentation; and
- it may make invoicing easier if the customer (rather than the supplier) determines the value of purchases after the goods have been delivered or the services supplied.
Before a business begins self-billing, it should consider the following points:
- It can only recover the VAT shown on selfbilled invoices if it meets the conditions explained in Notice 700/62.
- It may find it difficult to set up selfbilling arrangements with its suppliers, or burdensome to maintain them.
- It will be responsible for ensuring that the self-billed invoices it raises carry the correct VAT liability for the goods or services supplied to it.
- If it is raising electronic self-billed invoices to large numbers of suppliers, it will need to ensure that its accounting system is robust and accurate enough to handle the demands that will be placed on it.
How Does It Work?
If a business self-bills, it must:
- raise self-billed invoices for all transactions with the supplier named on the document for a period of up to 12 months or if it has a contract with its supplier, for the duration of that contract;
- complete self-billed documents showing the supplier’s name, address and VAT registration number, together with all the other details that make up a full VAT invoice;
- set up a new agreement if its supplier transfers its business as a going concern;
- keep the names, addresses and VAT registration numbers of the suppliers who have agreed to be self-billed, and be able to produce them for inspection by HMRC if required. HMRC recommends that a business reviews these details regularly so that it can be sure that it is only claiming VAT on invoices it has issued to suppliers who have valid VAT registration numbers.
A business must not issue self-billed VAT invoices:
- on behalf of suppliers who are not registered for VAT or who have deregistered; or
- to a supplier which changes its VAT registration number, until a new self-billing agreement is drawn up.
Practical Tip
Self-billing can make administration easier and reduce disputes with suppliers over the value of supplies received.