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What Is a Self-Billing Invoice?

Self-billing invoices are raised when the customer prepares the supplier’s invoices and send it to them for payment. To enter into this arrangement, both the customer and the supplier must be VAT registered.

The advantage of this is that the customer no longer needs to wait to receive an invoice from the supplier and reconcile it with the timesheet before payment. On the supplier’s side, the process is easier as there is no need to produce an invoice. Once they approve the timesheets, the customer can generate the invoice.

What this article covers:

What Is Self-Billing?

VAT invoices are usually issued by the supplier. However, in some circumstances, the customer can prepare the invoice and send the supplier the copy. This agreement between the customer and the supplier is called self-billing.

While any business can use this process, there are certain conditions that have to be fulfilled. This includes:

  • A prior agreement must be entered into by the supplier and customer
  • The supplier and the customer should be registered for VAT
  • The agreement is reviewed at regular intervals
  • The customer keeps a record of the suppliers who allow self-billing and fulfills other conditions relating to the content or issue of invoice
  • The self-billing invoices should contain the correct information including all the details that make a full VAT invoice

If a supplier is no longer registered for Vat, the customer can continue to self-bill them. However, they can’t issue the self-billing invoices and claim any input tax as the self-billing arrangement is no longer valid by VAT regulations.

It’s important to note that:

  • There is no impact of self-billing on commercial and contractual arrangements
  • The supplier and the customer must retain copies of self-billing invoices for tax and audit purposes, even when they chose to raise internal invoices for internal accounting purposes.

What Is a Self-Billing Invoice?

Once the self-billing agreement is in place, self-billing invoices are issued by customers for all the transactions with the suppliers during the period of the agreement.

Along with the details of a full VAT invoice, a self-billing invoice to a supplier will also include:

  • The names, address and identification number of the supplier and customer
  • The VAT registration number of the supplier and customer
  • The statement “The VAT shown is your output tax due to HMRC”
  • Marked with the reference: ‘self-billing’

Both parties of the agreement should ensure that the self-billing invoice accurately reflects the relevant transactions and the correct VAT rate is applied.

Some customers use third-party service providers to issue self-billed invoices on their behalf. In this case, the customer still remains responsible for guaranteeing that the invoices are issued.

The customers should still make sure they set up and review self-billing agreements with suppliers, keep copies of those agreements with the names, addresses and registration details of your suppliers and produce the suppliers’ details for inspection by the HMRC.

Suppliers should not treat self-billed invoices as purchase invoices and reclaim the VAT shown as input tax.

Why Use Self Billing?

Some of the key advantages of self-billing are:

  • Self-billing is a time saver as it means less administration for suppliers and customers, reduced costs and less time spent on invoice management.
  • Since the self-billing invoices are created in the format approved by customers, it facilitates financial administration.
  • As soon a timesheet is approved, the invoice is raised. This means quick payments for the customers.
  • Since the self-billing invoices are generated from approved timesheets/expenses, it contains accurate rates, days worked and the dates. This leaves no margin for error.

Because the rules of self-billing are not clearly defined, you should consult a qualified tax specialist if you’re planning to enter into an arrangement with the suppliers.

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