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A Guide to Self-Invoicing

If as a business you supply items to another business that is also registered for VAT, the VAT-invoice is usually provided by the supplier to their customer. This shows information of the items that have been purchased along with the VAT that has been charged. The problem is that without this, the customer will be unable to get back the VAT paid on the items purchased.

The VAT receipt is most commonly issued by the supplier to their customer; although in some instances instead of the supplier, the customer is able to prepare the invoice and then provides the supplier with the invoice. This method is referred to as 'self-invoicing' or 'self-billing'. All businesses are able to adopt this system, although certain conditions need to be met. This article provides help and information if you are considering setting up a self-invoicing agreement with your suppliers. If you want to set up a self-invoicing agreement with your suppliers, you are not required to tell HM Revenue & Customs (HMRC) or get approval from them, although you will need the agreement of your supplier.

Self-Invoicing Conditions

You are able to implement this agreement with your suppliers although you will need to meet certain conditions:
  • Each supplier will need to enter a separate agreement - see the next section of this article.
  • The agreements will need to be reviewed at regular intervals with your suppliers - see below.
  • Retain each supplier's records who have agreed to be self-billed - refer to record keeping further in the article.
  • Ensure all invoices include the correct information and are issued accurately.
Reviewing Self-Invoicing Agreements
  • Self-billing agreements usually last for 12 months. At the end of this period you will need to review the agreement to ensure you can evidence to HMRC that you have the agreement of your supplier to self-bill invoices you issue on their behalf. It's very important that you do not self-bill a supplier without their written agreement to do so.
  • You won't normally need to review an agreement if the period of self-billing is less than 1 year with the supplier.
If a supplier changes their VAT registration number, you will need to prepare a fresh agreement for them and you cannot issue invoices until this has been signed.

If a supplier discontinues their VAT registration, you can still self-bill them, although it goes without saying that you must not issue VAT- invoices to them, as the self-billing agreement with that supplier is no longer covered by the VAT regulations.

Under the VAT rules the self-invoicing agreement you prepare must have certain information enclosed.

Unfortunately the invoice will not be a valid VAT receipt, if you do not arrange self-billing agreement with your suppliers prior to issuing invoices, any purchase VAT on the invoice will be lost as you will be unable claim this. As you would expect from HMRC - this may need be repaid, along with a penalty if VAT has been claimed wrongly.

Pros of Self-Invoicing

Some of the benefits for arranging a self-Invoicing agreement with suppliers are as follows:
  • Helps save your both money and time - invoices can be sent via e-mail or other electronic form using your accountancy system. Soon you will be able to do this from Quick File as we are working hard to deliver the purchasing side of the system for our users.
  • Purchase invoices will be soon be able to be created directly on Quick File this will help to standardise the process reducing the administrative burden.
  • You hold control on how much you are going to be invoiced and more importantly the correct amount - this assists you in reconciling the cost of supplies received against invoices. Hence, no more matching purchase orders to delivery notes and then to the supplier invoices.
  • You are able outsource the administration of self-invoicing to a Bookkeeper or Accountant.
An important note to remember is that your suppliers do not need to be located only in the United Kingdom to be self-billed. You can also self-bill suppliers in other European Union countries or outside.

Pros for Suppliers

Entering a self-invoicing arrangement with your customer can also be advantageous for a suppliers business:
  • It can help with your cash flow - as you can state when payment is due by your customer in the self-billing agreement.
  • It is no longer your responsible for preparing invoices and ensuring that they have the correct VAT information on them. Saving you both time and administration costs.
Cons of Self-Invoicing

Self-billing is not suitable for all businesses, you may find that the following features mean it is not appropriate for you:
  • It will be your duty to ensure the VAT on each invoice you issue to your supplies is accurate, therefore you will need to take into account vatable and non-items purchased.
  • In order to provide online invoices you will need a secure and reliable system put into place - the development is already well under way for you to do this on Quick File, so this will soon not be a reason to stop you.
  • Electronic issued invoices to suppliers in other European Union countries will need to be satisfactory to each of their tax authorities, to this end, we have built Quick File to work in multiple currencies and tax rates and the purchasing side of our system will retain these great features.
  • You will only be able to claim back the VAT shown on invoices if certain conditions are met as described in this article.
  • You will have the burden of reviewing the agreements regularly and may prove hard to arrange self-invoicing agreements with your suppliers, if they do not agree to it.
Considerations as a Supplier

As a supplier, if your customer located in another European Union country sends you online invoices, you will need to ensure that:
  • The invoices need to be in a structure which is acceptable to HM Revenue & Customs.
  • Your current accounting package is able receive the invoice - the development is already well under way for you to use Quick File.
Record Keeping

Now that you decided to self-bill, you will need to retain appropriate records:
  • Copies of all the self-invoicing agreements entered into with every supplier.
  • The VAT numbers, names and addresses of each supplier agreed to be self-billed.

If you decide to subcontract the process of self-invoicing to a 3rd party, you are still liable for maintaining the records. If the compulsory records are note kept, the invoices issued will not acceptable VAT-invoices - therefore you cannot claim back the input VAT shown. Do not forget you will need provide your agreement and invoices if HM Revenue & Customs request them.

Information Required on the Invoices

When the agreement has been set up with your supplier, you are required to issue invoices for each purchase and credit note, until the self-billing agreement end date (usually 12 months).
In addition to entering the standard information that is required to be put onto a VAT-invoice you will additionally be required to enter the following details for your suppliers:
  1. Their Name;
  2. Their Address;
  3. Their VAT number.

The following statement must also be included by law 'The VAT shown is the output tax due to HM Revenue & Customs by you'. Finally remember not to add VAT onto the invoices issued to a supplier not registered for VAT.