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Self-Billing in the UK: A Comprehensive Guide

Gustav Wagner
By Gustav Wagner
Gustav Wagner

Gustav Wagner

Gustav Christopher Wagner “Gus” began his career in investment banking and equity trading before transitioning to fintech entrepreneurship. With 15 years’ experience in the financial markets and a CFA charter, he has developed a deep expertise in communicating complex financial concepts clearly and effectively. Based in London, UK, Gus is a bilingual financial writer in English and German, serving clients ranging from innovative start-ups to Fortune 500 companies. His writing portfolio includes topics such as banking, fintech, ESG investing and emerging technologies, with a particular focus on bridging the knowledge gap between the US and European markets. Gus has deepened his expertise with coursework in FinTech from Oxford and Sustainability from Cambridge. When he’s not writing about markets and technology, he’s an advocate for animal rights and enjoys exploring London’s parks with his dog.

Updated February 5, 2025
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Self-billing is a financial arrangement, or a business contract, between a customer and a supplier. In this self-billing arrangement, the customer prepares the self-billed invoices and sends them, along with the payment, to the supplier. 

This kind of financial agreement provides simplicity to transactions and removes the responsibility for the supplier to write and send a supplier’s invoice to their customer. Self billing thereby aims to ensure that cash flow to the supplier is predictable and consistent.

Who Can Issue Self-Billed Invoices?

By its nature, self-billing places more responsibilities on the customer — they are the only ones who can create and issue self-billed invoices. However, whether your role is customer or supplier, both parties need to agree to the conditions attached to the agreement within a formal self-billing agreement (HRMC — Self-billing guidance).

The Advantages of Self-Billing

It’s well known that self billing offers advantages to both the supplier and the customer. Here are some key ones:

1. Time Savings

As the supplier has less administrative work to do, there are substantial time savings. For growth-focused companies, streamlining manual processes is a necessity. Accounting staff can focus on core tasks.

2. Faster Payments

Typically, since payments are often linked to the self billed invoices, suppliers can expect to get paid quicker.

3. Streamlined Processes

Self-billing promotes uniform purchase documentation, which makes it simpler to manage. As the customer is generating the self billing document, they will usually include all the necessary details for the supplier’s reference. It can streamline the workload for accounting staff who can quickly identify any input VAT associated with the transaction.

4. Improved Accountability

One of the many benefits of self-billing is that customers have greater control over the self-billed invoices. If the supplier is slow to invoice, the customer can ensure the process proceeds efficiently, speeding up the transactional process.

Although there are numerous pros to self-billing, there are a few potential drawbacks to consider. In some cases, self-billing could introduce the potential for errors. Documents could go missing, or the wrong VAT rate could be applied to the invoice. It is, therefore, vital to use a well configured accounting system.

Take self-billing to a new level with AP automation 

Many AP solutions focus only on eliminating paper and automating invoices, but true efficiency lies in enhancing and optimising invoicing processes.

The Standard VAT Process in Self-Billing

In a self billing arrangement for VAT purposes, the customer rather than the supplier issues the VAT invoice on behalf of the supplier. For this type of self-billing agreement to be valid under VAT regulations, both the supplier and customer must be registered for VAT.

The self-billed invoice must include the supplier’s VAT number, a clear indication that the VAT is payable by the supplier, a detailed description of the supplied goods or services, the statement “Self-Billed Invoice”, and the correct VAT rate applied. 

It is crucial to note that there must be a written agreement between both parties to operate this self-billing arrangement. Also, the supplier must never issue their own VAT invoices while a self billing agreement is in place.

If a product or service is zero-rated for VAT, this must be clearly indicated on the self-billed invoice. 

Overall, any self-billing arrangement typically helps streamline the invoicing process while still ensuring VAT compliance; yet both parties must maintain accurate records and ensure all VAT regulations are followed correctly.

The Steps Suppliers Need to Take to Ensure Compliance with VAT Regulations

While the dictated self-billing terms are agreed upon by the customer and the supplier, both need to be aware of their compliance with specific VAT regulations. To do this, suppliers will need to take the following steps:

  • Keep a copy of the signed self-billing agreement readily available.
  • Immediately inform customers if they change their VAT registration number or have unregistered from VAT.
  • Never issue sales invoices as long as the self-billing agreement is still in effect.
  • Only accept purchase invoices generated by customers who have agreed to the self-billing arrangement.

Basic Rules for Self-Billing

Customers should adhere to the following conditions if they wish to establish a self-billing agreement with suppliers:

  • Every supplier’s agreement must be able to be verified legally.
  • Review agreements should be consistent.
  • Keep an accurate record of every supplier with a self-billing agreement.
  • Verify the accuracy of all information included in the self-billing document.
  • Ensure all self billing invoices are correctly issued self billed invoices.

Upon confirmation of the agreement, customers take on the long-term responsibility of issuing invoices for every transaction until the expiry date of the agreement or the end of the period of the agreement.

A new self-billing agreement needs to be put in place if there is a change to either party’s VAT number. The self-billing document should include the supplier’s name, address, and VAT registration number. 

Additionally, the statement “The VAT shown is your output tax due to HMRC” should be included in every invoice and the correct VAT rate should be used. The self-billed invoice must also clearly state “Self-Billed Invoice”. This assists the self-biller and allows them to accurately account for VAT purposes on their VAT return. Electronic invoicing is an option that could improve accuracy.

How Customers and Suppliers Can Mitigate Errors in Self-Billing Invoices

  • Maintain reliable communication with each other for the entire duration of the self-billing agreement. This helps prevent confusion regarding pricing.
  • Always check that there is compliance with the self-billing conditions and remain aware of all VAT regulations.
  • Pay close attention to the audit trail, which should incorporate all the information in the purchase invoices.
  • Double-check the details included in the transaction documents, including timesheets.
  • Keep documentation readily available for HMRC inspection.

Verify whether the correct VAT rate is applied, in line with any VAT notice. If you are unsure how this applies to your services, speak with your service providers or a VAT specialist. 

Remember that while the customer issues the invoice, the supplier remains responsible for the VAT payment to HMRC. If a self-billed invoice understates the VAT, HMRC can serve notice on both the customer and supplier.

To Conclude

While e-billing arrangements and self billing offer numerous advantages, such as streamlined processes, faster payments, and improved control for both customers and suppliers, they are not without their potential pitfalls. Maintaining accurate records, using the correct VAT rate, adhering to VAT regulations, and ensuring clear and open communication is necessary for any self billing agreement. 

Most importantly, both the customer and the supplier must be VAT registered for the agreement to be valid under VAT regulations. Any change to a company’s VAT registration number immediately makes the existing self-billing agreement invalid for VAT purposes and a new agreement must be drawn up. 

It’s important to note that if a self-billed invoice does not meet all conditions, input tax cannot be recovered. Any adjustments for incorrect VAT must be made with a self-billed debit note.

Also, remember that input VAT can only be reclaimed when a valid VAT invoice has been received, and customers should maintain good record-keeping. 

With proper diligence, self-billing drives productivity by putting customers in control. Streamline processes, accelerate cash flow, boost oversight — but make sure you stay VAT-compliant.

Streamline Your Self-Billing Process

Managing multiple self-billing relationships can be complex and time-consuming. With Tipalti Self-Billing Invoices, you can automate your business’s self-billing workflows, reduce manual errors, strengthen compliance, and improve supplier relationships through efficient payment processing.

Find out more about the benefits of AP automation and how to start your own automation journey by downloading our free AP Survival Guide eBook

Note: This text is based on information as of January, 2025. VAT regulations and self-billing requirements are subject to change. Always consult the latest HMRC guidance and seek professional tax advice for your specific circumstances before implementing any self-billing arrangements. The information provided here is for general guidance only and does not constitute professional tax or legal advice.

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