What Is a Self-Billing Invoice?
Self-Billing Invoice

Usually a supplier invoices its customer. Under self-billing, the roles reverse for the paperwork: the customer works out what it owes, prepares the invoice on the supplier's behalf, and sends it with the payment. It is common, and entirely legitimate, where the customer knows the value of the supply better than the supplier does: a manufacturer paying for materials by measured weight, a platform paying for work done through it, a publisher paying royalties, or a haulier paying owner-drivers by distance.

How self-billing works

1. The customer and supplier sign a self-billing agreement.
2. The supplier provides goods or services as normal.
3. The customer calculates the amount due from its own records.
4. The customer prepares the self-billed invoice in the supplier's name and sends a copy to the supplier with the payment, often with a remittance advice.
5. The supplier checks it and records it as its sales invoice. It does not issue its own invoice for the same supply.

VAT Notice 700 paragraph 17.4.1 describes it: under a self-billing arrangement, the customer makes out VAT invoices for a VAT-registered supplier and sends a copy to the supplier with the payment.

What the self-billing agreement must say

VAT Notice 700/62 lists what a valid agreement must do:

Self-billing and VAT

For a VAT-registered supplier, the self-billed invoice is its VAT invoice for the supply. The supplier accounts for the output VAT shown on it; the customer reclaims the same VAT as input tax, as long as the supplier is VAT registered. That is why the agreement requires the supplier to tell the customer about any change to its VAT registration: if the supplier is not registered, the customer cannot reclaim VAT on the self-billed invoice it raised. Each self-billed VAT invoice must carry the details of a VAT invoice and the reference "self billing".

What the supplier should check

Receiving a self-billed invoice does not mean accepting it blindly. Check the quantities, rates and VAT against your own records of what you supplied. If anything is wrong, raise it with the customer promptly; corrections under self-billing are made by the customer, usually with a self-billed credit note, because the customer is the one issuing the documents. Record each self-billed invoice as a sale, in your invoice records, just as you would your own.

Self-billing for businesses that are not VAT registered

Self-billing is best known as a VAT arrangement, but the idea works for any supplier: a platform or customer prepares the statement of what you earned and pays it. If you are not VAT registered, the self-billed document should not show VAT. Keep every self-billed statement as your record of income, because you will not have issued invoices of your own.

Where self-billing is common

In each case, the customer holds the data that fixes the price, so it is simpler and more accurate for the customer to prepare the invoice.

Advantages and risks

For the customer, self-billing controls timing and accuracy: invoices are raised from its own records, in its own format, on its own schedule. For the supplier, it saves invoicing work and usually brings predictable payment. The risk for the supplier is dependence on the customer's figures; a supplier who never checks its self-billed invoices may miss underpayments. The risk for the customer is VAT: reclaiming VAT on a self-billed invoice from a supplier who has deregistered is not allowed, which is why the agreement requires suppliers to report changes.

A worked example

A recycling company buys scrap metal from a VAT-registered demolition contractor under a self-billing agreement signed in January, running for the length of their contract. Each week the recycler weighs the deliveries, for example 16 tonnes, prices them at the agreed £250 a tonne and issues a self-billed VAT invoice in the contractor's name, marked "self billing", with its own number from the recycler's self-billing series, showing the weights, prices, net value, VAT and total. It pays the contractor and sends a copy of the invoice with a remittance advice. The contractor checks the weights against its own delivery notes each week, records each self-billed invoice as a sale, and accounts for the output VAT on it. It does not issue invoices of its own for the scrap.

Self-billing and your income records

For a supplier, the self-billed invoices are its sales invoices, so they are what its income figures, and if it is VAT registered, its VAT return, are built from. File them with the date received, match each to the payment it came with, and reconcile them against your own delivery or work records every month. Keep them for as long as your other records: at least 5 years after the 31 January filing deadline for a sole trader, and 6 years for VAT records; see how long to keep invoices.

If the customer pays late, your rights are the same as with your own invoices. For a business customer, statutory interest and fixed compensation can apply from the day after the agreed payment date; the late payment interest calculator works out the figures, and the guide on charging interest on late payments explains the rules.

Ending a self-billing arrangement

A self-billing agreement runs for the period it states. When it expires, the customer must renew it before issuing more self-billed invoices, or the supplier goes back to invoicing in the usual way. Either side can end the arrangement by not renewing. When it ends, agree the date from which the supplier will issue its own invoices again, so no supply ends up invoiced twice or not at all.

Numbering self-billed invoices

Self-billed invoices need sequential, unique numbers like any VAT invoice. Because the customer issues them, the customer usually runs a separate self-billing series for each supplier, so each supplier's invoices form their own unbroken sequence. Suppliers should keep them together, apart from their own sales invoices, so their records show clearly which sales were self-billed.

Common mistakes

• Starting before the agreement is signed. The agreement must be in place before self-billing begins.
• The supplier also sending its own invoice. That creates two invoices for one supply.
• Leaving off "self billing". Required on self-billed VAT invoices.
• Letting the agreement expire. Renew it if self-billing is to continue.
• Not telling the customer about a VAT change. The customer's VAT reclaims depend on the supplier being registered.
• Never checking the figures. A supplier who accepts every self-billed invoice without comparing it to its own records may miss underpayments for months.

Related terms

A self-billed invoice is a form of VAT invoice, often accompanied by a remittance advice. For what any invoice must contain, see what a UK invoice must include; for freelancers paid through platforms, see how to invoice as a freelancer. The VAT calculator checks the VAT on any self-billed amount.

In short: self-billing moves the job of writing the invoice to the customer who holds the figures, under a written agreement, and makes the customer's document the supplier's invoice. Done properly, it saves both sides work; done carelessly, it creates duplicate invoices and lost VAT reclaims. Check the agreement, check each invoice against your own records, and keep them all together.