Glossary

Self-billing & VAT glossary

Plain-English definitions of the self-billing and UK VAT terms you’ll meet — from the self-billing agreement to the reverse charge and CIS. General information, not tax advice.

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A

Aged debt / invoice aging Unpaid invoices grouped by how close they are to, or past, their due date. Agreement expiry / review date The date a self-billing agreement lapses or must be reviewed. Agricultural Flat Rate Scheme A VAT alternative for some farmers, who add a flat-rate addition instead of charging VAT.

C

CIS deduction Money a contractor withholds from a subcontractor’s labour payment and pays to HMRC. CIS domestic reverse charge The VAT reverse charge for construction services, in force since 1 March 2021. Construction Industry Scheme (CIS) An HMRC scheme under which contractors deduct money from subcontractor payments towards their tax. Contractor (CIS) A business that pays subcontractors for construction work under the CIS. Credit note A document that corrects or reduces a previously issued invoice. Customer (buyer) In self-billing, the party that raises the invoice and pays the supplier.

E

End user (reverse charge) A business that receives construction services but doesn’t make onward construction supplies.

G

Gross amount The total of a supply including VAT. Gross payment status CIS status that lets a subcontractor be paid in full with no CIS deduction.

I

Input tax The VAT a business pays on its purchases, which it can usually reclaim.

M

Making Tax Digital (MTD) HMRC’s requirement for VAT-registered businesses to keep digital records and file returns through compatible software.

N

Net amount The value of a supply before VAT is added.

O

Output tax The VAT a business charges on the goods and services it supplies.

P

Payable amount The amount actually due to the supplier after any deductions. Personal service company (PSC) A limited company through which a contractor provides their services.

R

Reduced rate (5%) A lower 5% VAT rate applied to certain supplies, such as some residential construction work. Remittance advice A note the customer sends the supplier confirming what a payment covers. Reverse charge A VAT rule where the customer, not the supplier, accounts for the VAT on a supply.

S

Self-billed invoice A VAT invoice the customer raises on the supplier’s behalf, marked “self-billing”. Self-billing An arrangement where the customer prepares the invoice on the supplier’s behalf, instead of the supplier issuing it. Self-billing agreement The written agreement, required before self-billing, in which a supplier accepts invoices raised on their behalf. Sequential invoice numbering The requirement for each VAT invoice to have a unique number in an unbroken sequence. Standard rate (20%) The main UK VAT rate, currently 20%, applied to most goods and services. Statement of account A running summary of the invoices, credit notes and balance between a customer and supplier. Subcontractor (CIS) A business or worker that carries out construction work for a contractor under the CIS. Supplier In self-billing, the party being paid — whose invoice the customer raises.

T

Tax point The date a supply is treated as taking place for VAT purposes. Taxable supply A supply of goods or services that is subject to VAT (at any rate, including 0%).

U

Umbrella company A company that employs contractors and invoices agencies for their work.

V

VAT (Value Added Tax) A tax charged on most goods and services in the UK, currently at a standard rate of 20%. VAT Flat Rate Scheme A simplified VAT scheme where a business pays a fixed percentage of turnover as VAT. VAT exempt A supply on which no VAT is charged and no related input tax can be reclaimed. VAT record-keeping The legal duty to keep VAT records, generally for six years. VAT registration number The unique number HMRC issues to a VAT-registered business. VAT return The periodic summary a VAT-registered business submits to HMRC showing VAT charged and reclaimed. VAT-registered A business that has registered for VAT with HMRC and charges VAT on its supplies.

Z

Zero-rated A supply that is taxable but at a VAT rate of 0%.

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