Andrew Needham looks at self-billing for VAT purposes and the advantages it can have for businesses.
Self-billing is an arrangement between a supplier and a customer, whereby the customer produces the sales invoice on behalf of the supplier; this can have advantages for both parties.
Both the customer and supplier must be VAT registered. 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 the supplier along with the payment.
If a business wants to put a self-billing arrangement in place, it does not have to tell HMRC or get approval from them, but it does have to get its supplier to agree to the arrangement and meet certain conditions. A self-billing agreement will usually last for 12 months or the length of the contract, after which the businesses will need to review the agreement. A separate self-billing agreement has to be set up with each supplier.
The business must 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.
Advantages for the customer
Self-billing a supplier can save time and money – a business can send self-billed invoices electronically so long as it can set up suitable systems.
The purchase invoices are produced to a standard format, making life easier for its accounts department.
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. This applies to businesses in the construction industry, scrap metal and royalties, etc.
The suppliers do not have to be based in the UK. A business can self-bill suppliers in other EU countries or in countries outside the EU, but there are additional rules that must be complied with.
Advantages for the supplier
A supplier that enters into a self-billing agreement with its customers can obtain the following advantages:
- The customer is responsible for making sure that the VAT details on the invoices are correct.
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As part of the agreement with the customer they may be able to specify when it will receive payment – this can help with a business' cash flow.
The VAT figure on the self-billed invoice the customer sends to the supplier is its output tax.
The supplier is accountable to HMRC for output tax on the supplies it makes to its customer, so it should check that the customer is applying the correct rate of VAT on the invoices they issue. If the customer shows the wrong VAT rate, the supplier is still responsible for accounting for the VAT correctly (Gemini Riteway Scaffolding Ltd v HMRC [2012] UKFTT 369 (TC)).
If there has been a VAT rate change, the supplier will need to check that the correct VAT rate has been used.
Some ‘don’ts’ for self-billing
A business must not issue self-billed VAT invoices:
- on behalf of suppliers who are not registered, or who have de-registered; or
- to a supplier which changes its VAT registration number until a new self-billing agreement is drawn up.
Practical tip
Self-billing can be administratively simpler for both the supplier and customer and can improve cash flow. Don’t forget to check the customer has applied the correct VAT rate, as the supplier is still responsible for accounting for the correct VAT.
