VAT and Self-billingJun. 28, 2017, 1:43pm
If you are contemplating using VAT self-billing arrangements, have you taken into account who is liable to pay the output tax to HMRC if a mistake is made in calculating the VAT on the self-billed invoice?
Self-billing agreements must comply with the requirements in VAT Public Notice 700/62 and each self-billing invoice needs to contain the statement ‘The VAT shown is your output tax due to HMRC’.
Your business, as the recipient of the supplies, would be liable for under-declared output tax where a mistake is made on a invoice under the VAT self-billing arrangements.
The relevant legislation is contained in VAT Act 1994 Section 29 which states:
(a) a taxable person (“the recipient”) provides a document to himself which purports to be an invoice in respect of a taxable supply of goods or services to him by another taxable person; and
(b) that document understates the VAT chargeable on the supply,
the Commissioners may, by notice served on the recipient and on the supplier, elect that the amount of VAT understated by the document shall be regarded for all purposes as VAT due from the recipient and not from the supplier.
The purpose of the legislation is to ensure that a self-billing business accepts responsibility for the correct tax liability of the supplies to which the invoices relate. In the event of an error being identified, a self- biller would receive a notice from HMRC requesting him to pay the money over within 21 days of that letter.