HMRC to launch public consultation on electronic invoicing to government and businesses
The UK Chancellor on 30 October in the Autumn Budget confirmed it will publish a consultation in early 2025 to establish standards and increase the adoption of electronic invoicing.
This had already been unveiled on 23 September as part of a package of reforms to improve the UK’s tax system to help fix the foundations of the UK economy.
As part of the package, HMRC will soon launch a consultation on electronic invoicing (e-invoicing) to promote its wider use across UK businesses and government departments. Scoping and timing of the consultation will be announced at the 30 October Autumn Budget. The consultation is likely to be in Spring 2025. HMRC had hinted at an e-invoicing mandate in October 2023 when looking at stubborn e-commerce VAT fraud.
Currently, there is no obligation to use B2B e-invoicing. For B2G, only sales invoices to NHS bodies must use EN16931 based e-invoicing via Peppol network access points. All public bodies must be able to accept structured e-invoices if their supplier prefers.
No launch before 2029; unlikely to be government pre-clearance model
Similar successful (!) e-invoicing launch schedules by tax authorities are at least 3 years long. This includes a year each for phases on:
- consultation and reporting back conclusions;
- legal and technical specifications development; and
- build, test and pilot phases.
So any launch could only come in 2029 at the earliest. This may include a phased introduction, firstly mandating larger businesses followed a year later by small businesses.
In terms of model, it is unlikely the UK will favour an invasive pre-clearance government e-invoicing, and instead promote voluntary standards, including PEPPOL.
The UK could look to the widely-praised Belgium 2026 two-staged plan:
- firstly mandating e-invoicing between businesses with PEPPOL option;
- at a later date, adding digital reporting to the tax authorities of summary e-invoice information.
HMRC has already adopted the EU invoicing standard EU Directive 2011/55/EU and the EN16931format. The UK is also looking to close the £8.2 bn VAT Gap and will be evaluating setting nation-wide standards and considering making the use of e-invoices mandatory.
UK taxpayers may already voluntarily use electronic invoices on B2B transactions if they have mutual agreement between parties. An e-invoice contains the same information as a paper invoice, but is in a structured, machine readable electronic format. HMRC’s Making Tax Digital for VAT introduced VAT return digital filing in 2019, followed by 2021 digital journey requirements for preparing VAT returns.
EU member states already raising billions with digital reporting
The EU is considering a single standard via its VAT in the Digital Age reforms. Countries such as Italy have already demonstrated major tax revenue boosts from their e-invoicing implementations. Countries such as France, Germany, Poland and Belgium have their own domestic versions launching shortly.
The introduction of e-invoicing can significantly reduce administrative tasks, improve cash flow, boost productivity, introduce automation, and reduce errors in tax returns – all helping to close the tax gap. The consultation will gather input from businesses on how HMRC can support investment in and encourage e-invoicing uptake.
E-invoicing to fight VAT evasion
The UK Treasury is keen to tap into the ability of e-invoicing to uncover tax evasion, and help close the national deficit.
E-invoicing, which originated in South America, can help tax authorities detect tax fraud by providing real-time access to transaction data, ensuring greater transparency. Each invoice is digitally authenticated with unique identification numbers and timestamps, reducing the risk of duplication or manipulation. This system allows tax authorities to track the movement of goods and services across the supply chain, ensuring that businesses accurately report sales and input tax credits. It also helps match reported invoices between buyers and sellers, flagging discrepancies for further investigation. By automating tax reporting, e-invoicing minimizes errors, increases compliance, and makes fraudulent activities like underreporting or fake invoicing easier to detect.
UK e-invoicing rules still follow EU VAT
The UK’s e-invoice rules are primarily shaped by VAT regulations and efforts to align with digital business practices. E-invoicing is allowed but not mandatory in the UK, and its usage is governed by HMRC. Businesses must ensure that e-invoices meet the same legal requirements as paper invoices, including essential details such as supplier and customer information, VAT number, description of goods or services, total VAT due, and invoice date.
To be valid, an e-invoice must be authentic, intact, and legible. Authenticity refers to verifying the origin of the invoice, integrity ensures no alterations, and legibility means that the invoice can be easily read, both when sent and stored.
Storage requirements also apply, and invoices must be kept for six years in a format that guarantees access, readability, and retrieval. The UK has embraced the EU’s VAT Invoicing Directive, which allows electronic and paper invoices to be treated equally for tax purposes. Although the UK left the EU, these guidelines continue to apply, supporting businesses’ transition to digital systems. Moreover, MTD initiative encourages businesses to adopt digital tools, including e-invoicing, for VAT compliance.
