Self-billing is a common practice for recruitment agencies who deal with contractors and freelancers. If you are on a self-billing arrangement for your contract, here is what you should know.
What is self-billing?
A self-billing arrangement is a formal agreement between a supplier and a customer. With regards to contracting, self-billing is agreed between a recruitment agency and a contractor’s limited company or umbrella company provider. The benefit of self-billing is that, as a contractor, you do not have to worry about generating invoices for your services and forwarding them to your agency (neither does your accountant – if invoicing is normally included in their service).
Instead, you simply submit timesheets and any rechargeable expenses via your recruitment agency’s online portal. The agency will then both produce and pay the invoice (or the end-client will, depending who the fee-payer is). The invoice will include your name, company name, registered office address, and VAT registration number (if applicable). It is also mandatory by law that all self-billing invoices raised are marked with the reference ‘SELF-BILLING’.
If your agency handles self-billing invoices for you, it is still your responsibility to review and ensure these are issued correctly as these will have to be accepted by your end-client before your company is paid (or if your umbrella company handles your payroll).
This set-up is a legal arrangement and will be agreed by your limited company, or umbrella company provider, and your recruitment agency.
Churchill Knight are experts in self-billing arrangements and one of our consultants would be happy to explain to you how this process works:
Do all agencies use self-billing?
Most large recruitment agencies operate self-billing, as it tends to be a more efficient and standardised process to pay contractors. It can also speed up your payment process and reduce the administration on your company.
Using self-billing requires an agency to set up a system to do so in the first place however, so not all agencies will have this in place.
Does self-billing affect the way I do my accounting for my limited company?
You need to track your self-billed invoices to ensure your company’s incoming payments match up with your timesheets and expenses. Essentially this will help you ensure all the information such as your rate,
recharged expenses (if any), and VAT are calculated and paid correctly.
To do this, you can simply raise an invoice without sending it to the agency. Instead it would simply link up with the remittance that your agency would send to you.
It’s also important to track all of this information so your tax and VAT amounts owed for the period are correct.
Churchill Knight clients receive tax and VAT calculations in both the Professional and Elite accountancy packages, including for contractors with self-billing arrangements. Find out more.
What if my company is VAT-registered?
If your company is VAT-registered and operates on a self-billing arrangement with your agency, your agency would be required to add VAT to its self-billed invoice and pay this to your company.
This would require you to provide your agency with the VAT registration number and certificate once you receive it – and to also inform them if your company ever deregisters from VAT. You then need to ensure that the agency will backdate any VAT owed from previous self-billed invoices that they’ve paid to your company net of VAT.
How do self-billing arrangements work for umbrella companies?
What if your contract is self-billing and you will be using an umbrella company? This is a frequently asked question. Luckily, self-billing arrangements are even simpler for you as a contractor if you work through an umbrella company. Once the self-billing agreement between yourself and your agency is set up, all you need to do is submit your timesheets to your agency or client. Then, your agency or end-client will produce a self-billed remittance to send to your umbrella company, who will then pay the remittance amount to your personal bank account.
Read about how easy it is to use Churchill Knight Umbrella.
Get support for your contract
If you have a company and will be working on a self-billing arrangement with an agency, or want to set up a company, Churchill Knight can help. Many of our clients work on self-billing arrangements, therefore we have the expertise to support you and educate you on how this process works. If using an umbrella company is a better option for you, Churchill Knight Umbrella is a hassle-free and easy way to get paid.
Contact us to discuss limited company accountancy or umbrella services.
Founded by an IT Contractor in 1998, Churchill Knight has become one of the most respected contractor accountants in the UK. We’ve helped over 20,000 contractors with their accountancy requirements. As well as our accountancy services, we also have an industry-leading PAYE umbrella company and dedicated in-house personal tax department. Whichever service you choose, you can move forward with complete peace of mind. We are proud of the reputation we’ve built over the years, and our FCSA accreditation proves how committed we are to compliance within our sector. Keep reading…