Self-billing under His Majesty’s Revenue and Customs (HMRC) can make operations more efficient. Many UK businesses use customer-issued invoices to speed up payments and keep their records consistent; however, compliance can be complicated.

Below, we’ll explain what HMRC self-billing is, how it works, and what organizations need to do to stay fully value-added tax (VAT) compliant when they handle invoicing.

What’s in this article?

• What is HMRC self-billing?
  
• How does HMRC self-billing work?
  
• What do self-billing invoices need in order to be VAT-compliant?
  
• When might UK businesses use customer-issued invoices?
  
• How do businesses establish self-billing agreements with suppliers?
  
• What challenges can arise in self-billing arrangements?
  
• How can organizations stay compliant with HMRC rules?
  
• How Stripe Invoicing can help
  

What is HMRC self-billing?

HMRC self-billing is a formal arrangement where the customer issues the invoice for a transaction. It reverses the usual flow: the buyer generates the invoice and sends a copy to the supplier. HMRC recognizes this setup as long as both sides agree to it in writing, follow specific record-keeping rules, and handle VAT exactly as they would with a typical invoice.

In a self-billing relationship, the customer takes responsibility for creating accurate invoices that reflect what they bought, using the supplier’s standard price and VAT treatment.. The supplier agrees not to issue their own invoices for those sales. Even though the customer generates the paperwork, the VAT shown on each invoice is still the supplier’s output tax, which means they’re responsible for declaring it to HMRC. If the self-billing agreement is between two VAT-registered parties (both the customer and supplier are required to be VAT-registered), the customer can treat the VAT on the invoice as input tax, the same way they would with any other valid VAT invoice.

Self-billing is optional and common in industries where customers are better positioned to calculate what’s owed by approving hours, measuring deliveries, or verifying performance. Self-billing can eliminate delays and mismatched paperwork. However, if mishandled, it can also introduce VAT risk.

How does HMRC self-billing work?

Once a self-billing agreement is in place, the customer must create each invoice for the supplier. After a delivery, completed service, or end of a billing period, the customer prepares an invoice like any other VAT invoice, which includes a unique number, date, description, pricing, and VAT calculation.

The customer sends the invoice copy to the supplier, usually alongside payment. The supplier then records that invoice as their sale and treats the VAT shown as output tax for HMRC. The customer records the same document as their purchase and, if eligible, claims the VAT as input tax. There’s no “second invoice” from the supplier.

In this process, the customer is responsible for creating an accurate invoice and thus needs accurate data and controls. If the supplier’s VAT registration status changes, the customer must update the invoices immediately and pause self-billing until a new agreement is signed. If the supplier deregisters, self-billing can continue, but without VAT invoices. If a supplier isn’t VAT-registered, the invoice cannot show VAT under any circumstances.

HMRC expects agreements to be reviewed and renewed annually to confirm that the details are still correct and the supplier still agrees to be self-billed.

What do self-billing invoices need in order to be VAT-compliant?

Self-billing invoices must meet the same standards as any VAT invoice and also include a few additional elements.

Self-billing invoices must show:

• Invoice details: Every invoice needs a unique number, invoice date, and clear description of the goods or services, including quantities, unit prices, discounts, and totals.

• VAT details: The invoice must show the total amount excluding VAT, VAT rate applied to each item, and total VAT charged. This establishes how much output tax the supplier owes.

• Supplier identity: The supplier’s name, address, and VAT registration number must all appear on the invoice. These details tie the transaction back to the correct VAT account.

• Self-billing label: The invoice must be clearly marked as “Self-Billing.” This tells the supplier, customer, and HMRC that the usual invoicing roles are reversed.

• HMRC output-tax statement: The recommended wording “The VAT shown is your output tax due to HMRC” should appear on every invoice. This prevents the supplier from accidentally reclaiming VAT they owe.

When might UK businesses use customer-issued invoices?

Self-billing tends to be used in sectors where the customer has better, faster, or more reliable information about what’s owed than the supplier. While the UK garnered £171 billion from VAT in the 2024–2025 fiscal year, the filing process involves a lot of paperwork, so any steps that can simplify the process are beneficial.

Self-billing often makes the VAT process faster in the following situations:

High-volume or repeated transactions

Businesses that process frequent payments, such as manufacturers buying recurring inputs or retailers receiving regular deliveries, might use self-billing to keep invoicing consistent and avoid delays. The customer invoices based on confirmed deliveries instead of waiting for suppliers to generate paperwork.

Providers of hourly services or piecework

Industries that rely on timesheets, measured output, or approvals (e.g., recruitment, contracting, and logistics) often adopt self-billing. Because the customer validates hours worked or loads delivered, they’re best equipped to create invoices.

Customers with on-receipt pricing

When pricing depends on weight, quality grading, or other inspection-based factors, the customer typically has the final data. Self-billing ensures invoices reflect the actual value received rather than the supplier’s estimate.

Suppliers with limited invoicing capacity

Some small or independent suppliers might opt to offload invoicing entirely. Self-billing gives them reliable payment and removes the admin burden of issuing invoices.

Companies with strict payable rules

Organizations with tight payables workflows or strict audit requirements often lean on self-billing to centralize accuracy. Controlling invoice creation reduces mismatches, double entries, and late corrections.

How do businesses establish self-billing agreements with suppliers?

Self-billing only works when both sides commit to a clear, written agreement that details the invoicing process. Every new self-billed supplier needs a signed agreement before the customer can issue the first invoice.

Self-billing agreements must include:

• Written authorization: The supplier must formally agree that the customer can issue invoices on their behalf and that the supplier will not send their own VAT invoices for the transactions.

• Defined duration: Agreements need an expiration date (typically 12 months out)..

• Notification requirements: The supplier must tell the customer immediately if they deregister for VAT, receive a new VAT number, or transfer the business. Changes like these require a new agreement before self-billing can resume.

• VAT status changes: If a supplier deregisters, invoices must immediately stop charging VAT. If the supplier gets a new VAT number, self-billing pauses until a new agreement is executed.

For an agreement to be compliant, the customer must maintain a clear list of all suppliers using self-billing, including their names, addresses, and VAT numbers. These records must be available if HMRC asks. Before an agreement expires, the customer should check that supplier details are still accurate and that both parties want to continue. A new agreement is required each year or whenever circumstances change.

What challenges can arise in self-billing arrangements?

Self-billing shifts risk toward the customer and requires tight coordination between both parties.

Common issues to be aware of include:

• Invoice accuracy: Because the customer is generating the invoice, any mistake affects both companies’ VAT returns. Errors often require credit notes or reissued invoices.

• VAT accountability: The supplier is still responsible for declaring the VAT shown on a self-billed invoice, even though they didn’t create the invoice. If the customer applies the wrong VAT rate, the supplier could owe HMRC additional tax.

• Misclaimed VAT: Without clear “self-billing” markings and the required output-tax statement, suppliers might accidentally treat the invoice like a normal purchase invoice and try to reclaim the VAT.

• Gaps in documentation: Missing invoices, duplicates, or poor storage can break the audit trail. HMRC might reject VAT claims if agreements aren’t available or invoices aren’t complete.

• Supplier status changes: If a supplier deregisters for VAT or receives a new VAT number and doesn’t flag it, the customer could keep issuing noncompliant invoices, which can invite penalties.

• Regulatory consequences: Persistent errors or missing agreements can lead HMRC to treat self-billed invoices as invalid, take back input VAT, or apply penalties.

How can organizations stay compliant with HMRC rules?

The goal is to keep self-billing agreements current, invoices correct, and communication with suppliers active.

Here’s how:

• Maintain current agreements: A signed agreement must be in place before any self-billed invoice is issued. Tracking renewal dates and refreshing agreements each year keeps the arrangement valid.

• Use complete, consistent invoice templates: Every invoice should follow the same structure, include all the required VAT and supplier details, and carry the self-billing label and output-tax statement.

• Verify VAT status regularly: Checking supplier VAT numbers (especially for long-term relationships) helps catch deregistrations or changes early.

• Stay in sync with suppliers: Clear expectations and regular check-ins encourage suppliers to share changes in their VAT status or business structure. This protects both sides from issuing noncompliant invoices.

• Keep a strong audit trail: Agreements, self-billed invoices, and payment records should be organized and easy to produce. A clean trail keeps VAT claims defensible if HMRC takes a closer look.

• Correct mistakes properly: When something goes wrong, fix it with credit notes or replacement invoices, never by adjusting future bills.

• Use reliable systems: Tools such as Stripe Invoicing help maintain structured templates, consistent numbering, and complete records. This reduces manual errors and eases audits.

How Stripe Invoicing can help

Stripe Invoicing simplifies your accounts receivable (AR) process—from invoice creation to payment collection. Whether you’re managing one-time or recurring billing, Stripe helps businesses get paid faster and streamline operations:

• Automate accounts receivable: Easily create, customize, and send professional invoices—no coding required. Stripe automatically tracks invoice status, sends payment reminders, and processes refunds, helping you stay on top of your cash flow.

• Accelerate cash flow: Reduce days sales outstanding (DSO) and get paid faster with integrated global payments, automatic reminders, and AI-powered dunning tools that help you recover more revenue.

• Enhance the customer experience: Deliver a modern payment experience with support for 25+ languages, 135+ currencies, and 100+ payment methods. Invoices are easy to access and pay through a self-serve customer portal.

• Reduce back-office workload: Generate invoices in minutes and reduce time spent on collections through automatic reminders and a Stripe-hosted invoice payment page.

• Integrate with your existing systems: Stripe Invoicing integrates with popular accounting and enterprise resource planning (ERP) software, helping you keep systems in sync and reduce manual data entry.

Learn more about how Stripe can simplify your accounts receivable process, or get started today.