What is self-billing in contract recruitment?
Self-billing is where the agency raises the invoice on the contractor's behalf rather than waiting for the contractor to send one. The agency generates a self-bill from approved timesheet data, sends it to the contractor as the record of what they are owed, and pays it. It requires a self-billing agreement in place with each contractor.
The reason it exists is timing. In a normal cycle the contractor works, submits a timesheet, gets it approved, raises an invoice, and the agency pays. Every one of those steps is a place the week stalls, and the most common stall is an invoice that never arrives or arrives wrong.
Self-billing removes that step. Because the agency already holds the approved hours and the agreed rate, it has everything the invoice needs. The document is generated from data that has already been signed off, which also means it cannot disagree with the timesheet.
There are conditions. HMRC requires a self-billing agreement with each supplier, the document must carry the correct particulars including the supplier's VAT number where they are registered, and agreements need reviewing when circumstances change. It is not something to run informally.
The payoff for a contract desk is that the contractor chase disappears from the week. What is left to chase is timesheet approval from the client, which is a smaller and more tractable problem than chasing dozens of individual invoices.
What must a self-billing agreement include?
HMRC's VAT Notice 700/62 sets out what makes an agreement valid. It must be in writing, on paper or electronically, and it must be agreed by both sides.
- The contractor's company agrees that the agency will raise invoices on its behalf.
- The contractor agrees not to issue its own VAT invoices for the same supplies.
- The contractor agrees to accept each self-billed invoice the agency creates.
- A start date and an end date, which can be tied to the length of the contract.
- The contractor will tell the agency straight away if it deregisters for VAT, changes VAT number, or transfers its business.
What has to appear on a self-billed invoice?
A self-billed VAT invoice needs everything a normal VAT invoice needs, but the supplier's details are the contractor's company, not yours: its name, address and VAT registration number, a unique invoice number, the date, the tax point, a description of the services, the net amount, the VAT rate and the VAT charged.
It must also be marked as self-billing. HMRC's guidance advises including the statement "The VAT shown is your output tax due to HMRC", because the contractor, not the agency, must declare that VAT on its own return.
Can you self-bill a contractor who is not VAT registered?
Not with a self-billed VAT invoice. HMRC's guidance is clear that a self-biller cannot issue VAT invoices for a supplier that is not registered or has cancelled its registration.
You can still raise the payment document from the approved timesheet, but it carries no VAT and is not a VAT invoice. The moment the contractor registers, the documents must change, and because a change in VAT status is exactly the sort of event the agreement covers, it is worth putting a fresh agreement in place at the same time.
Is self-billing better than contractor invoicing?
Both routes end with the contractor paid for approved time. The difference is who creates the document and what can go wrong on the way.
| Item | Self-billing | Contractor invoices the agency |
|---|---|---|
| Who creates the invoice | The agency, from approved hours | The contractor's company |
| When it exists | As soon as the timesheet is approved | Whenever the contractor sends it |
| Typical errors | Wrong VAT status held on file | Wrong rate, period or hours; missing details |
| Agency admin | Agreements, reviews and supplier records | Matching every invoice to a timesheet |
| Contractor admin | Check the self-bill and account for VAT | Raise and send an invoice every period |
| Paperwork HMRC may ask for | Signed agreements and the supplier list | The contractor's invoices |
What records does the agency need to keep?
The agency carries the record-keeping burden once it self-bills. VAT Notice 700/62 expects a self-biller to keep copies of the agreements and the name, address and VAT registration number of every supplier that has agreed to be self-billed, and it warns that invoices issued without those records are not proper VAT invoices.
HMRC advises reviewing each agreement every twelve months, which is also a sensible moment to check that the VAT number is still valid using HMRC's online VAT number checker. You do not need HMRC's permission to start self-billing, but you do need to be able to show the paperwork if it asks.
What happens when a self-billed invoice is wrong?
Do not quietly reduce or increase the next week's self-bill to compensate. HMRC's guidance is that a change in value should be dealt with by a separate document, which it calls a debit note, for the amount of the change. That keeps each period's VAT correct on both sides and leaves a trail if anyone checks later.
Because the contractor has agreed not to issue its own invoices, it has no way to correct your mistakes itself. Make it easy for contractors to query a self-bill, and fix the source, usually a rate or a VAT flag on file, so the same error does not repeat every week.
Where Vayora fits
Vayora generates self-billed invoices for limited company contractors from approved timesheets, on a separate numbering series from client invoices, with VAT applied when the contractor is marked VAT-registered. The date each self-billing agreement was signed is recorded, the agreement can be sent for e-signature, and pay runs produce remittance advice. It records whether a contractor is VAT-registered but not yet the VAT number itself, so that still needs holding alongside.
Common questions
- Does HMRC need to approve a self-billing arrangement?
- No. HMRC's guidance says you do not need its authorisation to operate self-billing. What it does expect is a valid written agreement with each supplier, the supplier records the notice lists, and self-billed invoices that carry the full VAT invoice details. If those are missing, the documents you issue may not count as valid VAT invoices.
- How often should self-billing agreements be reviewed?
- HMRC advises a review every twelve months. Each agreement also needs an end date, commonly twelve months or the length of the contract. Where many agreements would expire together, HMRC's guidance allows reviews to be spread across the year. Use each review to confirm the contractor's VAT status and details are still right.
- Can a contractor refuse to be self-billed?
- Yes. Self-billing only works by agreement, and a contractor's company can decline and invoice you itself. Many agencies make self-billing a standard term of engagement for limited company contractors, which is legitimate as long as the contractor signs a proper agreement. A contractor who will not sign has to be paid against their own invoices instead.
- Who pays the VAT on a self-billed invoice?
- The contractor's company. The agency pays the VAT to the contractor as part of the invoice total, but it is the contractor's output tax, declared on the contractor's VAT return. The agency reclaims the same amount as input tax in the normal way. That is why the invoice should say the VAT shown is the supplier's output tax due to HMRC.