Contractors and VAT self-billing

By: |Published on: Feb 24, 2014|Categories: Contractor, VAT|

Contractors have little to worry about with VAT.  Their accountant has (or should have) registered them under the flat rate scheme and will prepare the quarterly VAT returns based on the company’s sales invoices.

What is self-billing?

Normally in a commercial transaction the vendor issues a sales invoice. In this case your agency issues an invoice to itself – hence the term self-billing.

Contractors and self-billing

Most agencies operate a self-billing system which works as follows:

  • The contractor completes the timesheet;
  • The client signs off the timesheet;
  • The timesheet is submitted to the agency; and
  • Within a week the contractor is paid and the self-billed invoice is issued.

But did you know it is your responsibility to ensure the invoice is correct?

This means that all the details are correct and it complies with the legislation.  If not, it could be your company that finds itself in trouble with HMRC.

What are the key rules?

  1. If your agency is self-billing, you do not, and should not, raise an invoice for the same services;
  2. Your contract with the agency must include terms that allow the agency to self-bill;
  3. The terms for self-billing must include:
    • a fixed term (probably the length of your contract) but not more than 12 months; and
    • state that your company will not issue invoices.
  4. You will need to check the details are correct on your VAT invoice (see below).

What information needs to be on a VAT invoice?

  1. A unique number that is part of a series
  2. Company name, address and VAT number
  3. Date of issue (tax point)
  4. Agency name and address
  5. A description of the services supplied
  6. The rate of VAT applying to the services
  7. The total before VAT
  8. VAT
  9. The total including VAT

It is worth doing a proper check of the first self-billed invoice issued by the agency as once their system is set-up correctly, everything should be in order.

If you need help in checking your contract is valid for self-billing and to confirm the invoices comply with legislation then contact Clearways Accountants on 01737 244298.

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