Business tax – guidance

VAT: self-billing arrangements

How to set up a self-billing arrangement between a VAT-registered customer and their supplier, and the conditions that have to be met.

Overview

Self-billing is an arrangement between a supplier and a customer. Both customer and supplier must be VAT registered. The customer prepares the supplier’s invoice and forwards a copy to the supplier with the payment.

If you want to put a self-billing arrangement in place you don’t have to tell HM Revenue and Customs (HMRC) or get approval from them. But you do have to:

  • get your supplier or customer to agree to the arrangement
  • meet certain conditions

If you are the customer

Rules for self-billing

You can set up self-billing arrangements with your suppliers as long as you can meet certain conditions, you’ll need to:

Your suppliers don’t have to be based just in the UK. You can self-bill businesses in other European Union (EU) countries or in countries outside the EU.

You must not issue self-billed invoices to a supplier who has changed their VAT registration number until you’ve prepared a new self-billing agreement for them.

If a supplier stops being registered for VAT then you can continue to self-bill them, but you can’t issue them with VAT invoices. Your self-billing arrangement with that supplier is no longer covered by the VAT regulations.

Reverse charge procedure

There are special rules if you have a self-billing arrangement and you are involved in transactions that the reverse charge arrangement for business-to-business supplies of mobile telephones and computer chips applies to.

Self-billing agreements

You can only have a self-billing arrangement if your supplier agrees to put one in place. If you don’t have an agreement with your supplier your self-billed invoices won’t be valid VAT invoices - and you won’t be able to reclaim the input tax shown on them.

You’ll both need to sign a formal self-billing agreement. This is a legally binding document. The agreement must contain:

  • your supplier’s agreement that you, as the self-biller, can issue invoices on your supplier’s behalf
  • your supplier’s confirmation that they won’t issue VAT invoices for goods or services covered by the agreement (because you’ll be issuing the invoices for them)
  • an expiry date - usually for 12 months time but it could be the date that any business contract you have with your supplier ends
  • your supplier’s agreement that they’ll let you know if they stop being registered for VAT, get a new VAT registration number or transfer their business as a going concern
  • details of any third party you intend to outsource the self-billing process to

You’ll need to set up a new agreement if your supplier transfers their business as a going concern and both you and the new business owner want to carry on with self-billing.

Bear in mind that other countries in the EU can set their own conditions for self-billing. So you’ll need to make sure that any agreement you draw up for a supplier in another country meets those conditions as well.

If an HMRC officer wants to see the agreement you must show it to them.

Reviewing self-billing agreements

Self-billing agreements usually last for 12 months. At the end of this you’ll need to review the agreement to make sure you can prove to HMRC that your supplier agrees to accept the self-billing invoices you issue on their behalf. It’s very important that you don’t self-bill a supplier when you don’t have their written agreement to do so.

You won’t normally need to review an agreement if you provide self-billed invoices to a supplier for less than 12 months.

Record keeping

If you are a self-biller you’ll need to keep certain records. These are:

  • copies of the agreements you make with your suppliers
  • the names, addresses and VAT registration numbers of the suppliers who have agreed that you can self-bill them

You’ll still be responsible for keeping these records if you outsource self-billing to a third party provider.

If you don’t keep the required records, then the self-billed invoices you issue won’t be proper VAT invoices.

Self-billing invoices

Once you’ve got a self-billing agreement with a supplier, you must issue self-billed invoices for all the transactions with them during the period of the agreement.

As well as all the details that must go on a full VAT invoice you’ll also need to include your supplier’s:

  • name
  • address
  • VAT registration number

All self-billed invoices must include the statement ‘The VAT shown is your output tax due to HMRC’.

Remember that you don’t add any VAT to self-billed invoices that you issue to suppliers who aren’t VAT-registered.

Reclaiming input tax

You’ll only be able to reclaim the input tax shown on self-billed invoices if you meet all the record keeping requirements.

When you can reclaim the input tax depends on the date when the supply of the goods or services takes place for VAT purposes.

Normally the date of supply for VAT purposes is the actual date when the goods or services are provided to you, the customer. But if you issue a self-billed invoice within 14 days of this date of supply, then the date you issue the invoice becomes the date of the transaction for VAT purposes.

This determines which VAT Return you put the transaction on, and if there is a VAT rate change, it determines which VAT rate applies to the invoice.

If you are a VAT registered supplier

Setting up a self-billing arrangement

If one of your customers wants to set up a self-billing arrangement with you, they’ll ask you to agree to this in writing. If you agree, they’ll give you a self-billing agreement to sign.

The terms of the agreement are a matter between you and your customer, but there are certain conditions you’ll both have to meet to make sure you comply with VAT regulations.

For VAT purposes you’ll have to do all of the following:

  • sign and keep a copy of the self-billing agreement
  • agree not to issue any sales invoices to your customer for any transaction during the period of the agreement
  • agree to accept the self-billing invoices that your customer issues
  • tell your customer at once if you change your VAT registration number, deregister from VAT, or transfer your business as a going concern

Accounting for the output tax

The VAT figure on the self-billed invoice your customer sends you is your output tax. When you have to account for this to HMRC depends on the date of supply of the goods or services for VAT purposes. This date of supply is normally the date when you actually provide the goods or services to your customer, so you might have to account for the VAT before you’ve received the self-billed invoice or been paid.

You are accountable to HMRC for output tax on the supplies you make to your customer, so you should check that your customer is applying the correct rate of VAT on the invoices they send you. If there has been a VAT rate change, you will need to check that the correct rate has been used.

If you’re a supplier who receives electronic self-billed invoices from a customer in another EU country you’ll need to make sure that:

Take care not to treat self-billed invoices as purchase invoices and reclaim the VAT shown as your input tax. If you do incorrectly treat the VAT as input tax you’ll have to correct the mistake.

Detailed information about self-billing

You can find more information about self-billing in VAT Notice 700/62 (July 2013) Self-billing.