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When a business supplies goods or services to someone else who is VAT-registered they'll normally have to give them a VAT invoice. This sets out details of the transaction and the amount of VAT charged. Without a valid VAT invoice, their customer can't reclaim the VAT they've paid on their purchases.
Usually it's the supplier who issues the VAT invoice, but in some circumstances the customer prepares the invoice instead and gives the supplier a copy. This system is called 'self-billing'. Any business can use this procedure, so long as certain conditions are met.
This guide tells you how to put in place a self-billing arrangement with your supplier. If you're a supplier, it tells you what to expect if your customer wants to give you self-billed invoices.
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A self-billing arrangement is where a customer prepares VAT invoices on behalf of their VAT-registered supplier. The customer sends a copy of the invoice to the supplier with the payment. If you want to put in place a self-billing arrangement with your supplier you don't have to tell HM Revenue & Customs (HMRC) or get approval from them. But you do have to do the following:
Under VAT regulations the self-billing agreement that you prepare for your supplier must contain certain information. This guide includes an example agreement that shows the details it must contain.
If you don't put an agreement in place 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. If you do incorrectly claim the input tax you may have to pay a penalty.
Putting in place a self-billing arrangement with your suppliers can bring certain advantages for your business:
Your suppliers don't have to be based just in the UK. You can self-bill businesses in other EU countries or in countries outside the EU.
If you're a supplier, entering into a self-billing agreement with your customers can be helpful for your business because:
There are some aspects of self-billing that mean it may not be suitable for your business. For example:
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:
You can set up self-billing arrangements with your suppliers so long as you can meet certain conditions. You'll need to do all of the following:
You mustn't 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 of course you can't issue them with VAT invoices. Your self-billing arrangement with that supplier is no longer covered by the VAT regulations.
If you operate a self-billing arrangement and you are involved in transactions that the special reverse charge arrangement for business-to-business supplies of mobile telephones and computer chips applies to, you should refer to the revised accounting procedure, which is explained at the link below.
You can only put in place a self-billing arrangement if your supplier agrees to this. You'll need to prepare a formal self-billing agreement which you both sign. This is a legally binding document. VAT regulations say that the agreement must contain all of the following:
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.
Self-billing agreements usually last for 12 months. At the end of this period 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.
If you are a self-biller you'll need to keep certain records. These are:
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 - so you won't be able to reclaim the input tax shown on them.
You must produce your records if HMRC asks to see them.
Once you've got a self-billing agreement in place you must issue self-billed invoices for all the transactions with that supplier 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:
By law, 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.
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 one of your customers wants to set up a self-billing arrangement with you, they'll get in touch and 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 if you're VAT-registered 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:
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.
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.
|Details needed||Details supplied|
|Customer VAT number|
|Supplier VAT number|
|The self-biller (the customer) agrees to issue self-billed invoices for all supplies made to them by the self-billee (the supplier) until the following date:||(Insert either an end date for the agreement or the date your
... / ... / ...
|The self-biller agrees to complete self-billed invoices showing the supplier's name, address and VAT registration number, as well as all the other details that make up a full VAT invoice||Tick to indicate agreement|
|The self-biller agrees to make a new self-billing agreement in the event that their VAT registration number changes||Tick to indicate agreement|
|The self-biller agrees to inform the supplier if the issue of self-billed invoices will be outsourced to a third party||Tick to indicate agreement|
|The self-billee (the supplier) agrees to accept invoices raised by the self-biller on my behalf until the following date:||(Insert either an end date for the agreement or the date your
... / ... / ...
|The self-billee agrees not to raise sales invoices for the transactions covered by this agreement||Tick to indicate agreement|
|The self-billee agrees to notify the customer immediately if they change their VAT registration number, stop being VAT registered or sell their business (or part of their business)||Tick to indicate agreement|
|Customer's signature||Signed by:|
|Customer's business or organisation (if applicable)||Signed on behalf of:|
|Date:||... / ... / ...|
|Supplier's signature||Signed by:|
|Supplier's business or organisation (if applicable)||Signed on behalf of:|
|Date:||... / ... / ...|