The procedure of ‘self-billing’ is frequently used in the publishing and construction sectors, where a large business customer engages lots of smaller businesses as suppliers (eg authors or subcontractors). The customer issues self-billed invoices on behalf of the small suppliers, usually with the payment to each supplier.
If you are operating self-billing you must comply with the conditions set out in the VAT Notice 700/62: Self Billing. These conditions have recently changed, so make sure you download the latest version of the VAT notice from the HMRC website. In particular there is a new legal requirement to mark all self-billed invoices as ‘SELF BILLING’.
The key requirement of self-billing is that the suppliers must actively agree to self-billing, and provide the customer with their VAT details (registration number and address). Those that do not sign a self-billing agreement must issue their own invoices to the customer.
When you operate self-billing you should review your self-billing agreements at least once a year. This involves checking with the supplier that their billing details are still correct, and whether their business is VAT registered or not. In the recent recession many businesses have deregistered for VAT but have carried on trading.
It is important to get the supplier’s VAT details right. If you issue a self-billing invoice on behalf of a supplier, that includes VAT, when the supplier is not VAT registered, your business will over-claim VAT. This will result in penalties and interest for your business.
Your annual review of self-billing agreements does not have to be conducted all at the same time; the agreements can be reviewed on a rolling basis.