What self-billing actually is
Normally a supplier invoices their customer. Under self-billing the customer raises the invoice on the supplier's behalf. For an agency that means you produce the contractor's invoice to you, which is why it works so well with timesheets: the agency already holds the hours the client approved, so it already knows what it owes.
Because the document stands in for someone else's invoice, HMRC attaches conditions to it Notice 700/62. Meeting them is not onerous. Missing them invalidates the paperwork underneath a whole payment run.
The agreement comes first
There must be a written self-billing agreement with each supplier before any self-billed invoice is raised for them. Not the same week. Before. An invoice raised ahead of the agreement is not a valid self-billed invoice regardless of how correct its contents are, and the fix is not retrospective.
The agreement expires
The notice expects periodic review. In practice agreements are set to run for twelve months, or for the duration of the contract where that is shorter. When one lapses, the invoices raised under it afterwards inherit the problem. An expiry date that nothing is watching is the same as no expiry date.
The VAT rule that catches agencies out
The self-billed invoice can only show VAT where that supplier is VAT registered. It is their supply, not yours. A contractor below the threshold, or an umbrella that is not registered, must not have VAT added to the document raised on their behalf. Doing so produces an invoice claiming tax that nobody is accounting for, in a document with the agency's name on it.
Two related points worth getting right at the same time:
- Engagement type decides whether self-billing applies at all. A PAYE worker on the agency's own payroll is not making a VATable supply to the agency, so there is nothing to self-bill. An umbrella engagement bills through the umbrella company, which is the supplier.
- Sequence matters. Self-billed invoices need their own unbroken numbering, separate from the sales invoices the agency raises to its clients, because they are different supplies in different directions.
BookKept refuses the invoice before it refuses the audit
A self-billed invoice cannot be raised without a current agreement for that supplier: the check is a gate, not a warning, and the refusal says which condition failed. VAT appears only where the supplier is registered, PAYE engagements are rejected with the reason rather than silently self-billed, and the self-billed series runs on its own sequential counter separate from the agency's own sales invoices. Both invoices come off the same client-approved week, so the arithmetic cannot drift between them.