E invoicing In The UK – An HMRC Consultation

The Department for Trade and Business (DTB) along with HMRC have recently launched a consultation on the potential introduction of e-invoicing in the UK (please see here). The consultation will be open until 7 May 2025 and answers can be sent by submitting a form or by sending responses to einvoicingconsultation@hmrc.gov.uk.

What is e-invoicing?

E-invoicing is defined by the DTB and HMRC as the digital exchange of invoice information directly between buyers’ and suppliers’ financial systems, even if these systems are different. The outcome is an invoice which is automatically written into the buyer’s financial system without manual processing. E-invoicing is therefore meant to automate the exchange of invoices between buyers and suppliers.

Why does the UK want e-invoicing?

The purpose of this consultation is to gather views on standardising e-invoicing and how best to increase adoption of e-invoicing across UK businesses and government departments.

The DTB and HMRC argue in the consultation statement that the widespread adoption of e-invoicing in the UK should benefit both businesses and tax administration by supporting economic growth, increasing business productivity and improving business cashflow. They also mention that using the improved data to support tax reporting and compliance could also simplify tax administration and reduce errors in invoices and tax returns.

What questions is HMRC asking?

The questions cover a wide range of topics concerning the use of software for reporting, the costs associated to processing invoices, what approach would be best suited to the business needs of UK companies and others, how difficult it would be for businesses to adopt certain types of e-invoicing reporting.

We recommend reviewing the full list of questions, even if you have no intention to respond to the consultation as it will give you an understanding of what HMRC’s intentions are.

A few points to note

A significant part of the consultation paper addresses e-invoicing models, which the DTB and HMRC are considering looking at implementing.

Three different cases are discussed:

1. A centralised model – this would be the case where the Government would build a centralised system that processes all incoming and outgoing invoices. An invoice issued by the supplier would be sent to the system maintained by the Government which records it and then sends it to the customer. The consultation paper states that this system is costly to implement and therefore they do not plan to move forward with something similar. Nonetheless, the consultation is asking whether the Government is right in not wanting to move forward with such a system.

2. Decentralised model – under a decentralised system an invoice is raised by a supplier in his financial and accounting software and is sent directly to the customer’s financial and accounting system. In this model the government is not part of the invoicing trail. The DTB and HMRC believe the decentralised model would be better suited to the UK’s requirements as it could run in parallel to Making Tax Digital.

The end goal seems to be the introduction of Real Time Reporting and Continuous Transaction Controls. This means HMRC would eventually build a system that has instant or near instant access to all transactions undertaken by UK businesses. In the DTB’s and HMRC’s view such a system would allow it to get a better understand of how the economy works, tackle fraud and implement policies to help businesses.

Essentia comments

Many European countries have rushed in the past few years to introduce e-invoicing as a potential solution to fraud and evasion in a bid to increase their tax revenue.

While it is still too early to see conclusive evidence on how efficient e-invoicing in tackling fraud and evasion, tax authorities seem optimistic about these systems. However, as mentioned in a previous update, we have not seen tax authorities use this new wealth of information brought by e-invoicing as part of their audit procedures.

Additionally, we have not seen an assessment of the impact that Making Tax Digital has had on UK tax compliance and whether it has helped HMRC tackle fraud and evasion which does raise some questions around the need for another system to tackle the same issues.