A self-billing invoice is an arrangement between the supplier and the buyer, wherein the customer prepares the invoice for the supplier and sends them a copy along with the payment.
Both parties have to be VAT registered for this prior agreement. After that, they will be able to issue VAT invoices based on the VAT number generated and the following conditions.
One benefit of the Self-billing invoice is that the buyer of the goods doesn't have to wait for the seller to send an invoice before making payment. They can create a self-billing invoice by using a free online invoice generator to make the payment.
Similarly, the seller of the goods and services doesn't need to create an invoice to get paid either. Invoice is generated once the timesheet has been approved by the self-biller.
What You'll Learn
- 01What self-billing invoices are and how they work
- 02Key rules and requirements for self-billing agreements
- 03Essential components that must be included in self-billing invoices
- 04Benefits of self-billing for both buyers and suppliers
- 05Common pitfalls to avoid when using self-billing arrangements
Understanding Self-Billing Invoices
To understand the concept of self-billing invoices, it's essential to clarify what they represent. Let's briefly explore the idea of self-billing invoices.
What is self-billing?
Self-billing is when the buyer creates the invoice for the seller. This system is useful for buyers who regularly purchase from a supplier, as it makes payments easier by removing the need for suppliers to generate invoices. Both parties must agree to self-billing in advance, ensuring they follow tax laws and understand the payment terms clearly.
Key components of self-billing
The key components of a self-billing invoice are as follows:
Rules for Self-invoicing
Usually, the supplier is responsible for issuing VAT invoices. However, in some cases, the buyer may decide to prepare the invoice and send it to the supplier. This billing arrangement between both parties is called self-billing.
This invoice type can be used by any business, but there are certain conditions to be met for this process to take place.
The following conditions must be met for a valid self-billing arrangement:
- The customer and the supplier would have agreed that the buyer creates the invoice.
- The customer and the supplier must be VAT registered.
- The new self-billing agreement will be reviewed from time to time.
- The buyer has to keep records of the seller's goods to allow self-billing.
- The said self-billing invoice has to contain all the necessary details that should be included in a VAT invoice.
- If the seller of goods is no longer registered for VAT, the buyer will continue issuing the invoice. Still, they cannot include any input tax since VAT regulations no longer guide the arrangement.
Also, it is essential to take note of the below-mentioned points.
- Self-billing does not affect contracts and commercial agreements.
- Both the supplier and the buyer must have copies of correctly issued self-billing invoices for tax purposes.
When the self-billing arrangement has been made to issue self-billed invoices, the VAT registered customer generates the invoices throughout the contract.
What Does a Self-billing Invoice Look Like?
Aside from the details of a VAT invoice, the details to be included in a self-billing invoice are:
It is left to the buyer and seller in the self-billing agreement to ensure that the self-billed invoices must contain all the details of the goods bought with the appropriate VAT rate.
Why Use Self Billing?
If you prefer a self-billing invoice as a customer and your vendor is willing to get into an agreement with you, contact a tax specialist before reaching an agreement with them.
What a Business Should Double-check in a Self-billing Invoice?
Similar to everything, the self-billing invoice agreement too has a few cons.
Having said that, these are the points that can easily mitigate errors.
Always verify the following in self-billing invoices:
- Any invoicing discrepancies
- Correct vat rate and vat registration numbers as per VAT regulations
- Pay attention to the audit trail
- Compliance with conditions relating to self-billing
Sometimes, buyers may issue a self-billing invoice with the help of a third party on their behalf. Regardless, the buyer is still responsible for making sure the invoice is prepared and sent.
The buyer should also make sure that every billing agreement is kept with the seller. Records of every stage of the transactional process should also be kept with the correct details of the business for referencing purposes and inspection by the HMRC.
The seller shouldn't see self-billing invoices as purchase invoices but can reclaim the VAT rate included as input tax.
However, if you want to streamline your invoicing process leaving no room for invoicing mistakes, use the InvoiceOwl app. It lets you create and send accurate invoices on the go.
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Get Started for FreeFrequently Asked Questions
A self-billing invoice is an arrangement where the buyer (customer) creates the invoice on behalf of the seller (supplier) and sends them a copy along with the payment. Both parties must be VAT registered and have a formal agreement in place.
Any business can use self-billing invoices, but both the customer and supplier must be VAT registered and have a formal self-billing agreement in place. This arrangement is particularly useful for buyers who regularly purchase from the same supplier.
Self-billing saves time and reduces administrative tasks for both parties, allows buyers to use their preferred invoice format, enables faster payments once timesheets are approved, and reduces errors by including exact terms and dates worked.
A self-billing invoice must include the label 'Self-billing Invoice', names and contact details of both parties, unique invoice identification number, VAT registration numbers for both parties, and the statement 'The VAT Invoice shown is your output tax due to HMRC.'
If the seller is no longer registered for VAT, the buyer can continue issuing self-billing invoices, but they cannot include any input tax since VAT regulations no longer guide the arrangement.
Self-billing agreements should be reviewed from time to time to ensure they remain compliant with current tax regulations and continue to meet the needs of both parties.
