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What are the advantages of self-billing?

What is self-billing?

Self-billing is an arrangement between a supplier and a customer. Rather than the supplier issuing a tax invoice in the normal way, the customer raises a self-billing document.

The customer prepares the supplier’s invoice and forwards a copy to them along with the payment. Both the customer and supplier must agree to the arrangement.

Advantages for the customer

Self-billing your supplier can save time and money - you can send self-billed invoices electronically so long as you can set up suitable systems. The purchase invoices are produced to a standard format, making life easier for your accounts department.

Invoicing can be made easier if the customer (rather than the supplier) determines the value of purchases after the goods have been delivered or the services supplied. This will save credit notes etc. from being needed.

Your suppliers don’t have to be based in the UK either - you can self-bill businesses in other EU countries too.

Note. For countries outside the EU there are additional rules.

Advantages for the supplier

If you’re a supplier, entering into a self-billing arrangement with your customers can be helpful for your business because:

• your customer is responsible for making sure that the VAT details on the invoices are correct
• as part of the arrangement with your customer you may be able to specify when you’ll receive payment - which can help with your cash flow.

The VAT figure on the self-billed invoice is your output tax for the purposes of your VAT return.

Trap. You are accountable to HMRC for output tax on the supplies you make to your customer, so check that your customer is applying the correct rate of VAT on the invoices they send you. If they show the wrong VAT rate, you’re still responsible for accounting for the VAT correctly.

Note. If there has been a VAT rate change, you will need to check that the correct rate has been used.

Avoiding traps

You must not issue self-billed VAT invoices:

• on behalf of suppliers who are not registered or who have deregistered
• to a supplier which changes its VAT registration number, until a new self-billing agreement is drawn up.

If the self-billing rules are broken, the invoices will not be valid, and any tax recovered might be clawed back and lost.

Tip. If one of your suppliers deregisters you can continue to operate self-billing on an informal basis - the arrangement is no longer covered by the VAT regulations.

For a link to HMRC’s VAT Notice 700/62, visit http://tipsandadvice-vat.co.uk/download (VA 07.01.04).