Sometimes it will be mutually beneficial to enter into a self-billing agreement with your customers. This is where the customer prepares the VAT invoice for your goods or services themselves and sends you a copy. An example is where you pay an agent commission to sell goods on your behalf. Acting as agent is deemed to be supplying a service to the principal and the commission is the price of that service. Therefore, it is subject to VAT separately from the goods or services the agent is selling on your behalf, even if they themselves may be exempt or zero-rated.
In such a situation, it would clearly be inconvenient for you to invoice your customer (the agent) for the goods or services sold and for the customer to then invoice you for the commission. Obviously it would be far simpler for you to deduct commission on your own invoice. However, this would in effect mean you are invoicing yourself. For such an invoice to be valid for VAT purposes you must have a self-billing agreement with your customer and this must meet certain conditions.
The self-billing agreement must be in writing and be signed by both the supplier and the customer. It must also include all of the following information:
- your supplier's agreement that you, as the self-biller, can issue invoices on their behalf
- your supplier's agreement that they won't issue VAT invoices for goods and services covered by the agreement
- an expiry date for the agreement
- your supplier's agreement that they will inform you if they stop being registered for VAT, change their VAT number or transfer their business as a going concern
- details of any third party that you outsource the self-billing process to
If the self-billing agreement lasts for more than 12 months, you must review it with the supplier after that time to ensure that you still have their agreement. You must also keep copies of the self-billing agreement and all VAT invoices issued under the agreement.
In addition to the information normally required for a VAT invoice, it must also show the name and address of the supplier and their VAT registration number. It must also include the following statement: 'The VAT shown is your output tax due to HMRC'. Obviously you must not add VAT to the amounts you are self-billing on an invoice if the supplier is not VAT-registered.