Self-billing and the reverse charge: paying affiliates from the UK or EU without a VAT mess

By Jimi Barkway · Published 6 September 2026 · Part of the blog

Do you owe VAT on affiliate commission?

In shortIf your business is in the UK or the EU, a commission is a payment for a service. You are the buyer. The reverse charge is the rule that makes the buyer account for the VAT in its own country when it buys a service from a business abroad. So yes, you account for it. For most businesses it cancels itself out on the same return.

This page is for a founder outside the US who pays affiliates in other countries. The tax forms article covers the US side. Here the paperwork is different. It is a VAT entry on your return, and an invoice you write on the affiliate's behalf.

I read HMRC's three pages on this on 6 September 2026. The self-billing guidance, Notice 700/62 and Notice 741A. The EU directive articles come from a reading on 4 September. All of them are linked at the end. I noticed that the rules are short. The thing that trips people is a sentence that gets dropped in summaries. Both sides have to be VAT registered for self-billing to work.

A warning before the detail. This is general information about how the rules are commonly understood. It is not tax advice. Talk to an accountant before your first payout run.

What is the reverse charge, in plain words?

In shortYou act as both the seller and the buyer for VAT purposes. You put the VAT on your return as if you had charged it. You claim it back on the same return as if you had paid it. HMRC's own line: "you, the customer, must act as if you are both the supplier and the recipient of the services".

The UK rule is in Notice 741A. Paragraph 6.3 says that when one business sells a service to another, "the supply is made where the customer belongs". You are the customer. So an affiliate in Portugal promoting your product is supplying a service in the UK, for VAT purposes. Paragraph 5.1 then lists when the reverse charge applies. The place of supply is the UK. The supplier belongs outside the UK. You belong in the UK. The supply is not exempt. It applies even if your supplier happens to hold a UK VAT number.

Let's say you pay that Portuguese affiliate £500 in a month. You put £100 of UK VAT, 20% of £500, on your return as output tax. You claim the same £100 back as input tax on the same return, if your business is fully taxable. The net effect for most businesses is nil. The two entries still have to be there. The affiliate charges you no Portuguese VAT.

The EU rule is the same shape. The VAT Directive's Article 44 puts the place of supply where the customer has established their business. Article 196 makes the VAT payable by the customer when the supplier is not established in the customer's Member State. The 2008 directive that wrote it in says the customer "should self-assess the appropriate amount of VAT on the acquired service". So a Berlin startup paying a Spanish affiliate does what the UK founder does. On a German return.

What is self-billing, and who can use it?

In shortSelf-billing is when you write your supplier's invoice for them. HMRC's definition has a condition in the middle of it that matters. "Both customer and supplier must be VAT registered." This VAT arrangement covers registered affiliates only. An unregistered affiliate charges you no VAT on their side.

Here is HMRC's definition in full: "Self-billing is an arrangement between a supplier and a customer. Both customer and supplier must be VAT registered. The customer prepares the supplier's invoice and forwards a copy to the supplier with the payment."

Why do it at all? Strictly the affiliate should invoice you, since they are selling you a service. In practice someone promoting you from their spare room has never written a VAT invoice in their life. Self-billing turns that around. You write the invoice on payday and send it with the payment. Both of you then have a document that agrees with the money.

Many affiliates are individuals under any registration threshold. In the UK that threshold is £90,000 of taxable turnover in twelve months. For those affiliates the self-billed VAT invoice is not the tool. They charge you no VAT. The document you send them is a statement of what you paid, not a VAT invoice. Your accountant will tell you what to call it in your books, and whether the reverse charge entries still apply to a supplier abroad who is not registered. The point for this page is simple. The self-billing conditions below are for registered suppliers.

What must a self-billing agreement contain?

In shortFour things, in a signed document, before the first self-billed invoice. The supplier agrees you can issue invoices for them. They agree not to issue their own for the same supplies. It has an expiry date, usually twelve months. And they agree to tell you if their VAT status changes. Every invoice is then marked "SELF-BILLING".

HMRC's guidance says you "both need to sign a formal self-billing agreement". It calls that "a legally binding document". Notice 700/62 adds that "the agreement must be in place before self-billing commences". Without it, in HMRC's words, "your self-billed invoices will not be valid VAT invoices". And "you will not be able to reclaim the input tax shown on them". So the order matters. Agreement first, then invoices.

The contents, from the same page:

1. The supplier's agreement that you can issue invoices on their behalf.
2. Their confirmation that they will not issue VAT invoices for the goods or services the agreement covers.
3. An expiry date, "usually for 12 months time", or the date your contract with them ends.
4. Their agreement to tell you if they stop being VAT registered, get a new number, or transfer their business.

Three housekeeping rules follow. Review the agreement when it expires, because "self-billing agreements usually last for 12 months". If a supplier changes their VAT number, do not self-bill them again until you have a new agreement. And mark each invoice. Notice 700/62 says "you must clearly mark each self-billed invoice you raise with the reference: 'SELF-BILLING'". If an HMRC officer asks to see an agreement, you must show it.

In an affiliate program the natural place for the agreement is your program terms, accepted when the affiliate joins, with their VAT number asked for beside it. That is what the manual's payout methods chapter means by having your adviser bless the setup once, then letting it run.

What changes for an affiliate in the EU, or further away?

In shortTwo words on the invoice, and a check on the other country's rules. For an EU affiliate the invoice carries the words "Reverse charge". Article 226 requires it where the customer is liable for the VAT. For any country, HMRC says the other side can set its own self-billing conditions. Your agreement has to meet them too.

HMRC is explicit that self-billing crosses borders. Notice 700/62 says "Self-billing is not restricted to domestic supplies. You may hold self-billing agreements with businesses outside the UK." For services it asks two things. Know the place of supply rules in Notice 741A. And "agree the correct VAT treatment of the supply with the other party from the outset". The self-billing guidance adds a warning. "Countries can set their own conditions for self-billing", so an agreement for a supplier abroad has to meet those as well.

The EU invoice rule is one line. Article 226 of the VAT Directive lists what an invoice must show. Where the customer is liable for the VAT it requires "the mention 'Reverse charge'". So the self-billed invoice you write for a Spanish affiliate carries both markings. "SELF-BILLING" for HMRC, and "Reverse charge" for their tax authority.

Two things that do not apply. The EU One Stop Shop is for selling to consumers across borders. A commission paid to a business is not that. And nothing from the US tax forms applies to you as a UK or EU payer of a US affiliate. Their own US return is their business. The tax forms article has the table.

What does this look like on payday?

In shortOne invoice per affiliate per payout, written by your software and sent with the payment. It is marked "SELF-BILLING". It carries "Reverse charge" where the affiliate is in the EU. The VAT entries go on your return. The affiliate files the invoice and does nothing else.

For example, take a UK SaaS with twelve affiliates across Portugal, Germany and Canada. On the 15th the payout batch goes out from its own PayPal or Wise account. Each affiliate gets a self-billed invoice for their commission. It carries their VAT number if they have one, and the right markings. The founder's accountant gets one export with twelve lines, and the two VAT entries per line. That is the whole month's paperwork.

AffiliateRail writes those self-billed invoices per payout on its Scale plan, with the affiliate's agreement. The invoice travels with the payment, and the payment leaves your own account and never passes through AffiliateRail. Get your adviser to approve the agreement wording once. The rest runs.

Bring five questions to your accountant before the first run. Does your self-billing clause meet Notice 700/62? What do you call the statement you send an unregistered affiliate? Does an EU sole trader under their local threshold change anything under Article 196? What evidence of business status do you keep under paragraph 6.3? And does any affiliate's country add conditions of its own? Every rule on this page is linked to the HMRC or EUR-Lex page it came from, with the day it was checked, in the list at the end.

Common questions