If you have to wait for invoices from your suppliers it can add up to a three-month wait to reclaim the corresponding VAT. Would self-billing speed this up?
Billing issues
If you know the price of goods or services your supplier will charge, rather than wait for them to send an invoice self-billing has advantages. As the name suggests, this involves you generating purchase invoices when your business receives a supply. A self-bill contains the same details and is used in the same way as an invoice sent by the supplier. You don’t have to notify HMRC before starting self-billing.
Tip. Some bookkeeping and accounting software includes a self-bill option to make it easier to set up a self-billing arrangement. Check with your software provider.
Tip. You can choose which suppliers to use self-billing for. Where you choose to use it, you must use it for all goods and services you buy from them.
Self-billing terms and conditions
Self-billing can only be used where both you and the supplier are VAT registered. Before you can start issuing your own invoices you’ll need written approval from the supplier(s).
A self-billing agreement usually lasts for twelve months. As the end of the period approaches you’ll need to draw up a renewal document unless you intend to end the arrangement. Naturally, you must send a copy of your self-billing invoices to the supplier for their records so they can check them for correctness. If they notify you of a discrepancy you must correct it by issuing an amended invoice without delay.
Tip. Ask your supplier for a copy of their VAT registration certificate when they first agree to self-billing.
What’s on the invoice?
As with normal invoices a self-billed one must show details of your and the supplier’s name and address, plus the supplier’s VAT number and the usual details that are required by law on a VAT invoice.
Early VAT recovery
The most obvious and commonly cited advantage to self-billing is that you’re not reliant on your suppliers’ invoices arriving before you can reclaim the VAT payable on the purchase. As long as you have generated the self-billing invoice by the end of the VAT return period you can reclaim the VAT even if you haven’t paid your supplier for the goods or services.
Further advantages
There can be further advantages to self-billing apart from improving the timing of VAT recovery. For example, your purchase invoices will be in a consistent format making them easier to understand for your accounts department. Also, if any of your suppliers are prone to making errors in their invoices, self-billing will negate this. This means there should be fewer, possibly no, differences between your purchase ledger and your suppliers’ sales ledgers.
This article has been reproduced by kind permission of Indicator – FL Memo Ltd. For details of their tax-saving products please visit www.indicator-flm.co.uk or call 01233 653500.