FreeAgent bills: add, categorise, VAT and mark as paid

A bill in FreeAgent is a supplier invoice you owe but have not paid yet. You add it under Bills, and you mark it paid by explaining the bank transaction that settled it. The steps below follow FreeAgent's own support pages.

How to add a bill in FreeAgent

Add the supplier as a contact first. A bill needs an existing contact, and a hidden contact does not appear in the supplier list. For a hidden contact, open the contact and choose Add new, then Bill.

1. Select Bills at the top of the screen, then Add new bill (or Create your first bill). You can also use Add new on the Overview page.
2. Pick the supplier in Supplier Contact. The link Or add a new contact only takes a name, so add the email address and other details on the contact afterwards.
3. Enter the Reference. This is normally the supplier's invoice number.
4. Enter the Bill Date, which is the invoice date. FreeAgent works out Due On; overwrite it if the supplier's terms differ.
5. Set the currency. A bill in a non-native currency has its own steps, covered in FreeAgent's foreign currency bill page.
6. Choose whether you enter totals Including VAT or Excluding VAT.
7. Select Save and Review for a single-category bill, or Save and Continue for one with several categories or VAT rates.

FreeAgent also has Smart Capture. In the Attachment section, choose Upload to Smart Capture, upload the file, then use the three dots next to the total and select Create bill. It tries to fill the date, total and some suggestions such as the contact. Check every field before you save.

Choose the category and VAT

Under Bill contents, pick A single item or items of the same category when the invoice has one category and one VAT rate. Enter the category, total and VAT rate on the same screen. Pick Multiple items with different categories and VAT rates when it does not. You then add each line with Add bill item, choosing a Spending Category, a description, quantity, unit and total price. A bill can hold up to 40 line items.

FreeAgent lets you select only one VAT option per bill: UK VAT rates or Reverse Charge. A bill with goods and services from abroad where the reverse charge applies to part of it has to be entered as two bills. Non-standard UK VAT rates must be switched on in your VAT Registration settings before they appear.

If you are not VAT-registered, leave the rate on Auto or choose Out of Scope. If you leave it on Auto and register for VAT later, FreeAgent reclaims the VAT on those purchases on your first VAT return if required.

An example, with illustrative figures: a supplier invoices 480.00 plus 96.00 VAT, so 576.00 in total. Enter the bill as Excluding VAT with the 480.00 net value and the 20% rate, and check that the bill total reads 576.00 before you save. If it does not, the VAT option or the inclusive/exclusive setting is wrong.

Attach the invoice and set up recurring bills

In the Attachment section choose Select a file, then add an Attachment description. If you captured the document with the mobile app, use Choose from saved files; attaching it to a bill removes it from the Files area.

For rent, business rates or a subscription, use This Bill recurs and pick a frequency. FreeAgent then adds each new bill automatically until the date in Recurs until, or indefinitely if you leave that empty. Edit an individual bill when the amount or reference changes, as it does with a phone bill.

Mark a bill as paid

Marking a bill paid means explaining the bank transaction that paid it.

1. Go to Banking, then Bank Accounts, and open the account the payment left.
2. Select the payment.
3. Set Type to Bill Payment and pick the bill.
4. Select Explain transaction.

Bill Payment only appears when you have an open or overdue bill. If you do not use a bank feed or statement uploads, you can open the bill and choose Add a manual payment, but that records the payment in your primary bank account, so do not use it for a bill paid from another account. FreeAgent also has a page for paying several bills with one payment.

Bill, expense or bank payment?

FreeAgent's own guidance is short:

If you add a bill and then pay it personally, delete the bill and record an out-of-pocket expense instead, otherwise you double count the cost. The other route is two manual bank transactions dated the same day: for a limited company, money received as Payment to Director's Loan Account plus a Bill Payment against the bill. The Mark a bill as paid page lists these options; ask your accountant which fits your books.

Separately, the bill form has a Hire purchase checkbox, meant only for an item bought on a hire purchase agreement. Leave it unticked for an ordinary supplier invoice.

Where does Datamolino fit?

If supplier invoices arrive by email in volume, Datamolino captures them from a folder's email address or uploads, reuses your saved coding rules, and exports them to FreeAgent under Bills to pay with the original document attached. You still review each one, and you still explain the payment against the bank transaction in FreeAgent. For the bank side, see how to import a statement into FreeAgent. For the wider setup, see FreeAgent invoice scanning and invoice automation.

Should I add a bill or an expense in FreeAgent?

Add a bill when your business will pay the supplier from its own bank account. Add an out-of-pocket expense when you or a colleague already paid personally, for example with a personal card.