There has been a clear shift – in Europe and Globally – regarding the adoption of E-Invoicing, with many governments targeting a mandated shift over the coming years. Here we look at what E-Invoicing really means, the drivers of change, and the current state of play for UK businesses.
Understanding Real E-Invoicing
When we are talking about E-Invoicing in this respect, it is not simply an invoice in electronic format (a pdf, word file or png) which can be unstructured and inconsistent. In basic terms, these are more simply digital invoices, which effectively means they are not paper-based or physical and can be sent and stored digitally. Much of HMRC’s legislation around VAT and VAT invoicing also uses this definition.
However, “real” E-Invoicing needs invoices to be electronic and structured – so that they are processable automatically by machine, in formats such as XML or EDIFACT. This enables system-to-system communication and data exchange, with computerised protocols to acknowledge the receipt, and payment, of such an invoice. Often these E-Invoices are issued via a central interface (often government managed) to legitimise the invoice and automatically store it within both the issuing and receiving entity’s tax account.
Drivers – for businesses
There are many factors driving E-Invoicing internally within businesses, including:
- Cost saving (compared to issuing sales invoices manually, and to receiving and processing purchase invoices (data entry)
- Error reduction (when compared to human and/or basic OCR software data entry)
- Government mandation (wanting to be compliant with incoming legislation)
- Increased security/fraud reduction (less opportunity for tampering/rogue interference).
- Potential for greater visibility and understanding of VAT obligations.
While businesses can incur high implementation costs, electronic invoicing can, over time, reduce business spending and stimulate the broader digitalization of taxation-related processes.
Drivers – for tax authorities
The advantages of e-invoicing and real-time VAT data for tax authorities are clear. It can assist in closing VAT gaps, prevent unintended errors, enhance risk management capabilities and early detection of fraud schemes.
Near real-time data availability offers even greater possibilities for quicker and more in-depth analysis of economic developments, gaining transparency and allowing greater accuracy in forecasting tax receipts.
Current and future EU position
The European Commission’s VAT in the Digital Age (“ViDA”) initiative is an EU wide planned mandate for system-to-system data exchange, with the overall objective of making electronic invoicing the default method of issuing sales and purchase invoices.
The scheme is essentially aiming to accelerate the adoption of e-invoicing across all EU member states, resulting in widespread usage by 2030 via local government mandation within the countries involved (Germany are set to adopt the scheme in 2025, and France in 2026).
However, it should be noted that not all EU businesses and those that trade in the EU are fully aware and prepared for the fundamental change ViDA will bring.
Current UK position
At this time, within the UK, it is only mandatory for NHS England suppliers to issue E-Invoices (which are sent via PEPPOL, an e-delivery network operating a globally recognised standard for e-invoicing).
HMRC’s Making Tax Digital programs (MTD for VAT, and the upcoming MTD for ITSA) are attempting to close the tax gap and modernise the record keeping of SMEs and landlords. However, this drive only takes these SMEs so far on their digital journey – there is so much more potential for efficiency and streamlined operations.
The UK government have previously indicated that they want to promote the wider use of e-invoicing and have just announced that they will be launching a consultation, with a new Digital Transformation Roadmap, expected in Spring 2025. This Roadmap will set out HMRC’s vision to be a digital-first organisation.
It is good to see HMRC recognise that e-Invoicing is a real opportunity to close the VAT Gap and that it is being pushed up the agenda.
How ViDA and E-Invoicing transforms the future of businesses
ViDA will affect ALL businesses that trade with customers in the EU. We will wait to see how the early adopters within the EU see this working for UK and other non-EU businesses. However organisations which use forward-thinking cloud-based platforms should be at an advantage and can hope for minimal disruption.
Ultimately the rise of e-invoicing as an opportunity to take a step back and consider an organisation’s overall strategy. Like with any change, you can either apply a short-term fix and will probably have to re-visit it in a couple of years, or you seize the opportunity to enhance what you are doing and gain the associated efficiencies of tech adoption.
Essentially, digitalisation needs to be a key component of any business strategy to future-proof the entire organisation.
If you need help with your digitalisation strategy or starting on your journey of digitalisation, please do get in touch with us via the contact form below:
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