How customers and their suppliers must treat VAT if they're using self-billing arrangements.
This notice cancels and replaces Notice 700/62 (September 2014). Details of any changes to the previous version can be found in paragraph 1.2 of this notice.
1.1 What this notice is about
This notice is about the VAT treatment of self-billing. Self-billing is a commercial arrangement between a supplier and a customer in which the customer prepares the supplier’s invoice and forwards a copy to the supplier with the payment.
You may only issue self-billed invoices to your suppliers if:
- they’ve agreed to this method of accounting
- you have set up a self-billing agreement (section 3)
- you follow the rules set out in paragraph 4.1
You don’t need to seek HM Revenue and Customs’ (HMRC) authorisation to operate self-billing.
1.2 What’s changed
Section 3.1 has guidance added to clarify the requirements for self-billing agreements.
Section 6.4 has been updated to confirm the responsibility of self-billees for accounting for output tax.
1.3 Who should read this notice
This notice is written for customers who operate, or wish to operate self-billing with their suppliers and for suppliers who accept, or wish to accept self-billed invoices from their customers.
|If you’re a||see especially sections|
|customer who issues, or who wants to start issuing self-billed invoices to your suppliers (in other words, you are a self-biller).||2 to 5 and 7 to 8.|
|supplier and one of your customers issues, or wants to issue, you with self-billed invoices (in other words, you are a self-billee),||6 and 7 to 8.|
1.4 Law covering this notice
The relevant law is:
- the Value Added Tax Act 1994, section 29
- the VAT Regulations 1995, regulations 13(3) and 13(3A) to 13(3F)
Part of this notice has the force of law under these regulations. Parts that have the force of law are indicated.
2. Advantages of being a self-biller and points to watch
The advantages of self-billing are:
- your accounting staff will be working with uniform purchase documentation
- it may make invoicing easier if you (rather than your supplier) determine the value of your purchase after the goods have been delivered or the services supplied
2.2 Points to watch
Before you begin self-billing, you should consider the following points:
- you can only recover the VAT shown on self-billed invoices if you meet the conditions explained in this notice
- you may find it difficult to set up self-billing arrangements with your suppliers, or burdensome to maintain them
- you will be responsible for ensuring that the self-billed invoices you raise carry the correct VAT liability for the goods or services supplied to you
- if you’re raising electronic self-billed invoices to large numbers of suppliers, you’ll need to ensure that your accounting system is robust and accurate enough to handle the demands you’ll be placing on it - for more information see section 8 of Notice 700/63: electronic invoicing
3. Self-billing agreements
3.1 Contents of agreements
You can only issue self-billed invoices to suppliers with whom you have set up formal self-billing agreements. The agreement must be in place before self-billing commences. The table below summarises what the VAT regulations say about what makes a valid self-billing agreement.
|No.||A valid self- billing agreement must|
|1||include the supplier’s agreement to the self-biller raising invoices for their (the self-billee’s) supplies.|
|2||specify that the supplier agrees not to raise VAT invoices for supplies covered by the agreement.|
|3||specify that the supplier will accept each self-billed invoice created by the customer for supplies made to them by the supplier.|
|4||contain a start date and expiry date, though the expiry date can be related to the term of any contract between the supplier and customer.|
|5||bind both you and your supplier. This means it should be in writing, either on paper or in electronic form.|
|6||be produced if you are asked to produce it by one of our visiting officers.|
|7||include the supplier’s agreement that they’ll tell the self-biller if they cease to be registered, transfer business as a going concern or become registered under another VAT number. This is because you can’t claim the VAT back on a self-billed invoice you’ve raised if the supplier isn’t VAT-registered.|
|8||make it clear if you intend to outsource responsibility for issuing the self-bills to a third party, such as an accounting bureau. This is because your self-billed invoice replaces your supplier’s sales invoice.|
Any invoice must conform with the rules for a self-billed VAT invoice in paragraph 4.2.
3.2 How to prepare an agreement
To help you prepare an agreement, HMRC has provided an example at section 8 of this notice. You may use this and complete it with your own and your supplier’s details if you wish.
If you prefer, you can prepare your own agreement or make it part of the contract with your supplier. If you do this, include all the information required in an agreement.
3.3 Reviewing agreements
3.3.1 Duration and renewing agreements
A self-billing agreement will specify the period that the agreement is to run for. If you want to carry on self-billing at the end of that period:
- you will need to review the agreement so that you can provide HMRC with evidence to show that your supplier has agreed to accept the invoices you raise on their behalf for a further period
- you and your supplier will need to agree a new period for self-billing
However, if you have a business contract with your supplier, you may not need to make separate self-billing agreements. If the self-billing agreement is included in the terms of the contract, the agreement will last until the end date of the contract. In these circumstances, you would not need to review the self-billing agreement until the contract had expired.
3.3.2 Regularly review agreements
Reviewing agreements is important, because it allows you to confirm that your supplier is:
- still VAT-registered
- happy to continue the VAT self-billing arrangement with you for a further period
It is advisable to carry out a review every 12 months.
3.3.3 Reviewing VAT self-billing agreements made with individual suppliers on different dates
If you have a large number of suppliers, and you’ve made agreements with them on different dates, review each agreement on its expiry date.
If you do make individual agreements with your suppliers on the same date, and the agreements all expire on the same date (for example, you have agreed with all of your suppliers to operate VAT self-billing for a period of 12 months from today’s date) you may find it difficult to review all of the agreements on the same date. In such a situation you may review them on a rolling basis spread over 6 to 12 months.
If you do this, you should set the appropriate time limits on your original agreements when they’re made. You must avoid self-billing a supplier at any time when you don’t have their written agreement to do so.
3.3.4 Self-billing suppliers for less than 12 months
If you are providing self-billed invoices to a supplier for a period of less than 12 months, you will not normally need to review the agreement.
3.4 Where an agreement isn’t set up
Without an agreement, the self-billed invoices you have issued are not evidence of your entitlement to input tax. HMRC may assess you for tax and charge you a penalty if you have claimed input tax on them.
4. Rules for self-billers
4.1 Main rules
If you’re a self-biller you must:
- raise self-billed invoices for all transactions with the supplier named on the document for the period of the agreement between you or, if you have a contract with them, 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. For more information about the details you need to show, see paragraph 4.2
- set up a new agreement if your supplier transfers their business as a going concern, and both you and the individual who has bought the business want to carry on operating self-billing
- keep the names, addresses and VAT registration numbers of the suppliers with whom you have self-billing agreements, and be able to produce that information for HMRC to inspect if they ask you to. HMRC recommends that you review these details regularly so that you can be sure that you are only claiming VAT on invoices you have issued to suppliers who have valid VAT registration numbers. The simplest way of doing this is to keep a list of the suppliers you self-bill
You must not issue self-billed VAT invoices:
- on behalf of suppliers who are not registered, or who have deregistered
- on behalf of a supplier who has changed their VAT registration number until you have drawn up a new self-billing agreement with them
You can check whether the VAT registration number and address provided by your supplier is valid is by entering the VAT registration number on the European Commission VIES VAT registration number validation page at VIES VAT number validation.
4.2 Information self-billed invoices must contain
The invoices must contain all the data elements listed in paragraph 16.3 of VAT Notice 700: the VAT guide.
The following sentence has the force of law
You must clearly mark each self-billed invoice you raise with the reference: ‘SELF-BILLING’.
HMRC advises that you should also include the following statement on each self-billed invoice you raise:
‘The VAT shown is your output tax due to HMRC’.
This will help to prevent your suppliers claiming the VAT back on these invoices by mistake.
4.3 Buying a business from somebody who has been self-billing
You may carry on self-billing if this method of accounting suits both you and your suppliers. If you do decide to continue self-billing, you must make a new self-billing agreement with each supplier.
If you are not sure whether you want to self-bill your suppliers, section 2 will help you to weigh up the advantages and disadvantages.
4.4 Using a third party to issue self-billed invoices
If you use a third party service provider to issue self-billed invoices on your behalf, you are still responsible for ensuring that the invoices are issued.
This is because your suppliers will have agreed to accept the invoices that you issue on their behalf. So, you will still be responsible for:
- setting up and reviewing self-billing agreements with your suppliers
- keeping copies of those agreements
- keeping the names, addresses and registration details of your suppliers
- producing the copy agreements or your suppliers’ details for inspection when HMRC asks you to
4.5 Correcting a self-billed invoice
You should not reduce the value of a supply for which you have already raised a self-billed invoice by reducing the total you show on a subsequent invoice. Instead, you should issue a debit note for the amount by which the value of the supply has been changed.
4.6 What happens if you break the self-billing rules
If this happens, the self-billed invoices you issue will not be proper invoices. They will not be evidence of your right to deduct input tax and your supplier will have to issue their own invoices.
4.7 What to do if input tax has been claimed incorrectly
Claiming input tax incorrectly can result in an assessment, which may carry a penalty and interest.
To help avoid this, please remember that you cannot claim input tax:
- when your supplier is not registered for VAT, or has deregistered
- on any sales invoices you receive from a supplier to whom you have already issued a self-billed invoice for the same supply
If you find that you have claimed input tax incorrectly, see VAT Notice 700/45: How to correct VAT errors and make adjustments or claims. This will tell you how to correct the error and how you can avoid a penalty.
5. Tax points for self-billed supplies
5.1 What tax point to use for self-billed supplies
The normal tax point rules described in sections 14 and 15 of VAT Notice 700: the VAT guide apply, apart from those linked to the issue of a VAT invoice. This is because issuing a self-billed invoice does not normally create a tax point in the same way as happens when a supplier issues its own VAT invoice.
The one exception to this is where you issue a self-billed invoice within 14 days of the basic tax point as described in paragraph 14.2.2(b) of VAT Notice 700: the VAT guide. This creates a tax point.
5.2 When to claim the input tax
You can claim input tax on a self-billed invoice in the accounting period in which the tax point falls (in line with paragraph 5.1 above).
Where you issue a self-billed invoice with payment to the supplier, you may use a notional tax point for the purposes of claiming back input tax. The notional tax point is the day after the date the self-bill invoice was issued.
6. Information for self-billees (suppliers)
6.1 Identifying customers that are intending to self-bill
The customer will seek your agreement in writing. There is an example of a written agreement at section 8. The agreement that your customer asks you to sign will be similar to this.
The rules for agreements are explained in paragraph 3.1.
You will need to keep a copy of any self-billing agreement you make. You can keep it in either a paper or electronic format, but you must be able to produce it if one of HMRC’s visiting officers asks you to.
Once you have given your agreement, the main rules that apply to you as a self-billee are explained in paragraph 6.3.
6.2 If you don’t want to agree to self-billing
HMRC will not insist that you agree to self-billing. But your customer may make self-billing a condition of doing business with you.
6.3 Main rules for self-billees (suppliers)
If you are a self-billee, you must:
- not raise sales invoices for any transactions with your self-billing customer for the period of your self-billing agreement with them - the agreement will last either for a specified period agreed between you or, if you have a contract with your customer which contains a self-billing agreement, for the duration of that contract
- agree to accept the invoices your customer raises on your behalf for the duration of the agreement
- agree to notify your customer at once if your VAT registration status changes - this is because a new agreement will have to be drawn up
6.4 VAT treatment of the self-bills received
The self-billed invoice is for supplies you have made to your customer, and the VAT shown on it is your output tax. You should check the invoice is accurate and the correct rate of VAT has been applied. You need to account for the output tax on the VAT payable side of your VAT Account (see section 3 of VAT Notice 700/21: keeping VAT records).
Self-billees sometimes make the mistake of treating their self-billed invoices as purchase invoices. If you have treated the VAT on a self-billed invoice as your input tax, this is an error. Section 2 of VAT Notice 700/45: how to correct VAT errors and make adjustments or claims tells you how to correct the error.
Remember, you must not issue your own sales invoices in respect of any transactions covered by the self-billing agreement.
6.5 When to account for the output tax on self-bills
This is governed by the tax point in the normal way. The rules are described in sections 14 and 15 of VAT Notice 700: the VAT guide. There is more information about the effect these rules have on self-billed supplies in section 5 of this notice.
Your customer is required to show the tax point on the self-billed invoice. You need to be aware that, under the normal tax point rules, you may be required to account for output tax even if you have not yet:
- received the self-billed invoice
- been paid for the supply
6.6 If you can’t meet the self-billing conditions
You will have to tell your customers and arrange to issue your own invoices for the supplies you make to them if you:
- are unable to meet the self-billing conditions in this notice
- fail to meet them
7. Self-billing outside the UK
Self-billing is not restricted to domestic supplies. You may hold self-billing agreements with businesses in EU member states and in countries outside the EU.
7.1 Rules for intra-EC self-billing
Individual member states can’t impose additional conditions for VAT self-billing, so there won’t be any additional conditions or procedures for self-billing in the member state in whose territory the goods or services are supplied.
7.2 Supplies of goods
The following table tells you what you will need to bear in mind if you have self-billing agreements for supplies of goods with non-UK businesses.
|If you are a||Then you need to|
|self-biller being supplied with goods from another member state||be aware that the self-billed invoice may establish the time of acquisition in the same way as an invoice the supplier issued would. You can find more information about the time of acquisition in section 7.3 of VAT Notice 725: the single market.|
|self-billee supplying goods to another member state||be able to meet the conditions in paragraph 4.3 of VAT Notice 725: the single market so that you have evidence to support the zero-rating of your supply. Remember that, when you negotiate the agreement, you will be agreeing to accept all the invoices that your customer issues on your behalf. Remember also that the terms of this agreement may be different from those in the agreements you have signed with your UK customers for the reason given in paragraph 7.3.|
|self-biller being supplied with goods from a country outside the EU||familiarise yourself with the rules about import VAT Notice 702: imports. You may also need to check what information your supplier will need you to include in the invoices you raise on their behalf so that they will be acceptable to their own tax authority as evidence of export.|
|If you are a self-billee making supplies of goods to a country outside the EU||meet the requirements for documentary evidence of export. These are explained in section 6 of VAT Notice 703: exports of goods from the UK.|
7.3 Supplies of services
If you have self-billing agreements for supplies of services with non-UK businesses, you will need to:
- be familiar with the rules in VAT Notice 741A: place of supply of services
- agree the correct VAT treatment of the supply with the other party from the outset
8. Example self-billing agreement
Here’s an example of an acceptable
You may reproduce it if you wish, but you don’t have to word your agreement in exactly this way as long as the agreement you will be using contains all the required information, as explained in section 3.
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