Self-billing

Foreword

The law on self-billing is in the Value Added Tax Act 1994, sections 6(9) and 29 and in the Value Added Tax (Amendment) (No. 6) Regulations 2003. A part of this notice has the force of law under these regulations. It is indicated by being placed in a box, as in the example below.

Further help and advice

If you need general advice or more copies of Customs and Excise notices, please ring the National Advice Service on 0845 010 9000. You can call between 8.00 am and 8.00 pm, Monday to Friday.

If you have hearing difficulties, please ring the Textphone service on 0845 000 0200.

If you would like to speak to someone in Welsh, please ring 0845 010 0300, between 8.00 am and 6.00 pm, Monday to Friday.

All calls are charged at the local rate within the UK. Charges may differ for mobile phones.

Other notices on this or related subjects

700 The VAT Guide

702 Imports

703 Exports and removals of goods from the United Kingdom

725 The Single Market

741 Place of supply of services

700/21 Keeping records and accounts

700/45 How to correct VAT errors and make adjustments or claims

700/63 Electronic Invoicing

1. Introduction

1.1 What is self-billing?

Self-billing is an 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.

1.2 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.

You can access details of any changes to this notice since December 2003 on our internet website at www.hmce.gov.uk or by telephoning the National Advice Service on 0845 010 9000.

This notice and others mentioned are available both on paper and on our website.

1.3 When can I operate self-billing?

You can only issue self-billed invoices to your suppliers if:

• they have agreed to this method of accounting; and
• you can meet all the conditions in section 3 and paragraph 4.1.

You do not need to seek our authorisation to operate self-billing.

2. Advantages of being a self-biller and points to watch

2.1 Advantages

The advantages of self-billing are:

• your accounting staff will be working with uniform purchase documentation; and
• 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 are raising electronic self-billed invoices to large numbers of suppliers, you will need to ensure that your accounting system is robust and accurate enough to handle the demands you will be placing on it. There is more information about this in section 8 of Notice 700/63 Electronic Invoicing.

3. Self-billing agreements

3.1 Contents of agreements

A self-billed invoice can only be issued under an agreement with your supplier. The following table summarises what the VAT regulations say about what makes a valid self-billing agreement.

Because a self-billed invoice cannot evidence your entitlement to input tax if the supplier is not VAT registered, it is advisable for the agreement to include:

And because your self-billed invoice replaces your supplier’s sales invoice it is helpful for the agreement to:

Remember, 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, we have 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. But if you do this, remember to include all the information required in an agreement.

3.3 Reviewing agreements

A self-billing agreement will usually last for 12 months. At the end of that period, you will need to review the agreement so that you can provide us with evidence to show that your supplier has agreed to accept the invoices you raise on his behalf.

However, if you have a business contract with your supplier, you may not need to make a separate self-billing agreement. In these circumstances the self-billing agreement would last until the end date of the contract, and you would not need to review the self-billing agreement until the contract had expired.

3.3.1 Must I review all my agreements on the same date?

No. If you have a large number of suppliers, and it would be difficult to review all of your agreements on the same date, you may, if you wish, review them on a rolling basis spread over 12 –24 months.

If you do this, take care when setting time limits on your original agreements. Please remember, you must avoid self-billing a supplier at any time when you do not have his written agreement to do so.

3.3.2 What if I self-bill one of my 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 What if I fail to set up an agreement?

Without an agreement, the self-billed invoices you have issued are not evidence of your entitlement to input tax, and you may be assessed for tax and a penalty if you have claimed input tax on them.

4. Rules for self-billers

This section covers the rules that apply when you have a formal agreement with your supplier to self-bill.

4.1 Main rules for self-billers

If you are a self-biller you must:

• raise self-billed invoices for all transactions with the supplier named on the document for a period of up to 12 months; or, if you have a contract with your supplier, 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, see paragraph 4.2;
• set up a new agreement if your supplier transfers his business as a going concern, and both you and the individual who has bought the business want to continue operating self-billing;
• keep the names, addresses and VAT registration numbers of the suppliers who have agreed to you self-billing them, and be able to produce them for our inspection if we ask you to. We recommend 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;
• to your supplier if he changes his VAT registration number until you have drawn up a new self-billing agreement with him.

4.2 What information must self-billed invoices contain?

The invoices must contain all the data elements listed in paragraph 16.3 of Notice 700 The VAT Guide.

This will help your suppliers to avoid claiming the VAT on these invoices as input tax in error.

4.3 Acquiring a business from someone else who has been self-billing

When this happens, you may continue to self-bill if this method suits both you and your suppliers. Section 2 will help you weigh up the advantages and disadvantages.

Please remember that if you do decide to continue self-billing, you must make a new self-billing agreement with each supplier.

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, the responsibility for ensuring that invoices are issued remains with you.

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; and
• producing the copy agreements or your suppliers’ details for inspection when we ask you to.

4.5 Self-billed debit notes

If you operate a self-billing arrangement you cannot reduce the value of the supply on a subsequent self-billed invoice. You must issue a debit note showing the amount of the adjustment to the value of the supply.

4.6 What happens if I 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 his own invoices.

4.7 Claiming input tax 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; or
• on any sales invoices from your supplier where you have already issued self-billed invoices.

If you find that you have claimed input tax incorrectly, please see 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 is the tax point for supplies I self-bill?

The normal tax point rules described in sections 14 and 15 of 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 a VAT invoice issued by a supplier would do.

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 Notice 700 The VAT Guide. This creates a tax point in the same way as a normal VAT invoice.

5.2 When can I claim the input tax?

The accounting period in which you may claim input tax is governed by the tax point for the supply in line with paragraph 5.1 above.

Where a self-billed invoice is issued with payment to the supplier a notional tax point can be used for input tax purposes. The notional tax point is the day following the date of issue of the self-billed invoice.

6. Information for self-billees

6.1 How will I know if one of my customers is intending to self-bill?

The customer will seek your agreement in writing. We have provided 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 may keep this in either a paper or electronic format, but must be able to produce it if one of our 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 What if I do not want to agree to self-billing?

We will not oblige you to agree to self-billing. However, your customer may make agreement to self-billing a condition of your making supplies to him.

6.3 Main rules for self-billees

If you are a self-billee, you must:

• not raise sales invoices for any transactions with your self-biller for the period of your self-billing agreement with him. The agreement will last either for a period of 12 months or, if you have a contract with your customer, for the duration of that contract;
• agree to accept the invoices your customer raises on your behalf for the duration of the agreement; and
• 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 How should I treat the self-bills I receive for VAT purposes?

The self-billed invoice relates to supplies you have made to your customer, and the VAT figure on it is your output tax. You need to account for this on the VAT payable side of your VAT Account (see section 6 of Notice 700/21 Keeping Records and Accounts).

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 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 do I have 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 Notice 700 The VAT Guide. There is more information on 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 still be required to account for output tax even if you have not yet:

• received the self-billed invoice; or
• been paid for the supply.

6.6 What if I can’t meet the self-billing conditions?

If you are unable to meet the conditions for self-billing in this notice, or if you fail to meet them, then you will have to advise your customers and make arrangements to issue your own invoices for the supplies you make to them.

7. Self-billing outside the UK

7.1 Can I self-bill outside the UK?

Yes. Self-billing is not restricted to domestic supplies. You may hold self-billing agreements with businesses in EC Member States and in countries outside the EC.

7.2 What are the rules for intra-EC self-billing?

Member States can set their own conditions for self-billing agreements, and these will vary. It’s important to remember that any self-billing agreement you negotiate must meet the conditions and procedures in place in the Member State in whose territory the goods or services are supplied.

7.2.1 Raising electronic self-billed invoices

If you raise electronic self-billed invoices for your suppliers in other Member States, and the electronic method you use is neither advanced electronic signature nor electronic data interchange (EDI), your supplier may have a problem with the format of your invoices. This is because some tax authorities do not accept all the electronic methods of raising invoices that are permissible in the UK. You and your supplier will need to be aware of this risk before you set up a self-billing agreement together. You can find out more about this in Notice 700/63 Electronic Invoicing.

7.2.2 Receiving electronic self-billed invoices

If you receive electronic self-billed invoices from a customer in another Member State, those invoices will need to be issued in a format which meets UK requirements and which your accounting system can accept. You and your customer will need to be aware of this risk before you set up a self-billing agreement together. You can find out more about this in Notice 700/63 Electronic Invoicing.

7.3 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.

7.4 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 Notice 741 Place of supply of services; and
• agree the correct VAT treatment of the supply with the other party from the outset.

8. Example self-billing agreement

What follows is an example of an acceptable self-billing agreement. You may use it if you wish to, but you do not have to word your agreement in exactly this way as long as the agreement you do use contains all the relevant information, as explained in section 3.

Do you have any comments?

We would be pleased to receive any comments or suggestions you may have about this notice. Please write to:

HM Customs and Excise
Accounting and Records Team
4th Floor SW
Queens Dock
Liverpool
L74 4AA

Please note this address is not for general enquiries. You should ring our National Advice Service about those.

If you have a complaint or suggestion

If you have a complaint please try to resolve it on the spot with our officer. If you are unable to do so, or have a suggestion about how we can improve our service, you should contact one of our Regional Complaints Units. You will find the telephone number under ‘Customs and Excise - complaints and suggestions’ in your local telephone book. Ask for a copy of our code of practice ‘Complaints and putting things right’ (Notice 1000). You will find further information on our website at http://www.hmce.gov.uk.

If we are unable to resolve your complaint to your satisfaction you can ask the Adjudicator to look into it. The Adjudicator, whose services are free, is a fair and unbiased referee whose recommendations are independent of Customs and Excise.

You can contact the Adjudicator at:

The Adjudicator's Office
Haymarket House
28 Haymarket
LONDON
SW1Y 4SP

Phone: (020) 7930 2292
Fax: (020) 7930 2298
E-mail: adjudicators@gtnet.gov.uk
Internet: http://www.adjudicatorsoffice.gov.uk/

Please be aware that our PDF, Word, Excel and Powerpoint documents will open in a new window.

Download free viewers for all formats >>