Self-billing, and
who raises the invoice.

Most arguments about subcontractor payment are arguments about a document. He invoiced for eleven days, you valued nine. Self-billing removes the document by making the valuation produce the invoice, and it is legitimate, well established, and conditional on paperwork most firms have never set up.

What self-billing is

An arrangement in which the customer, not the supplier, prepares the invoice and sends it to the supplier along with the payment. You value the work, you raise the document, and your subcontractor never issues one at all.

It is common in construction for the obvious reason: the main contractor already knows what the work was worth, because it measured it. Asking the subcontractor to guess, then correcting the guess, is a step that exists only to create a piece of paper.

What HMRC requires before you can do it

Self-billing is permitted for VAT purposes provided conditions are met, and they are not onerous. The core of it:

• A written agreement with each supplier, made before you raise the first self-billed invoice. It must record that the supplier agrees not to issue their own VAT invoices for the transactions covered, and that they will accept the ones you issue.
• A review period. The agreement runs for a specified period, commonly twelve months, after which it is reviewed and renewed rather than running indefinitely by default.
• The supplier's VAT number on the document, and an obligation on them to tell you if it changes or if they deregister.
• Correct invoice content, the same particulars any VAT invoice needs, marked as a self-billed invoice.
• A copy kept of every self-billed invoice you raise, and records of the agreements themselves.

The obligation that carries the real risk is the VAT number. If your supplier deregisters and does not tell you, and you keep raising self-billed invoices showing VAT, you have been reclaiming input tax you were not entitled to. That is your exposure, not theirs, which is why the agreement puts the notification duty on them in writing and why the review period exists.

Self-billing moves the paperwork from the party that knows least about the value to the party that knows most. It also moves the VAT risk in the opposite direction.

Where CIS and the reverse charge complicate it

In construction, three regimes meet on the same document, and this is the part worth getting right.

CIS deduction still applies exactly as it would otherwise. You must still verify the subcontractor with HMRC to establish the deduction rate before you pay, and self-billing changes nothing about that. Verifying a subcontractor covers the step and the order it belongs in. The self-billed invoice shows the gross, the qualifying materials, the amount deducted and the net paid, and the payment and deduction statement follows as normal.

The domestic reverse charge applies to most construction services between VAT-registered businesses where the recipient is not the end user. Where it applies, you do not pay VAT to the subcontractor at all: you account for it yourself. A self-billed invoice under the reverse charge therefore shows no VAT to be paid, states that the reverse charge applies, and shows the VAT rate or amount to be accounted for by the customer. The reverse charge is set out separately.

The combination catches people. A self-billed invoice for a reverse-charge supply from a subcontractor on a 20 per cent CIS deduction has no VAT paid across, a deduction taken from the labour element only, and materials excluded from that deduction. Getting that wrong on one document is an error. Getting it wrong on an automated run of two hundred is a correction exercise.

When it is worth doing

Self-billing pays for itself where three things are true: you have a reasonable number of regular subcontractors, you already measure or value their work formally, and invoice queries are consuming office time.

It is not worth the setup where subcontractors are occasional, where valuation is informal, or where the relationship is a single package on a single job. The agreement is per supplier and it has to be maintained, so a long tail of one-off firms is administration without benefit.

There is a softer benefit worth naming. A subcontractor who receives a self-billed invoice built from the agreed valuation, on the day the valuation is agreed, has nothing to chase and no reason to ring. That removes a class of phone call entirely, which is the same argument as the subcontractor portal from the other direction.

How it goes wrong

1. The agreement was never signed. The practice started informally and the paperwork never followed. This is the most common failure and it is the one that matters at inspection.
2. The agreement expired. Signed once in 2021, never reviewed, still in use.
3. A supplier deregistered. Nobody told you and nothing checked, so VAT has been shown on invoices for a supplier who has not been registered for a year.
4. The document is not marked as self-billed. A required particular, and easy to omit when the template was adapted from an ordinary sales invoice.
5. Two invoices exist. The subcontractor also issued one, because nobody told their bookkeeper, and both are now in somebody's ledger.

Where to start, on Monday

List the subcontractors you paid more than six times last year. That list, not the full register, is where self-billing pays. For most firms it is between five and fifteen companies and it accounts for the large majority of invoice queries.

Then check one thing before anything else: whether you already self-bill anybody informally, and whether there is a signed agreement for it. Firms that discover they have been self-billing without an agreement usually discover it during an inspection, and finding out on a Monday is considerably better.