Potential Introduction of e-invoicing in the UK

The UK Government has recently announced it will undertake a consultation on whether HMRC should introduce an e-invoicing system in the UK.

This shouldn’t come as a surprise to anyone who is familiar with recent EU trends in taxation, however it might come as a shock to UK businesses.

For some time now European governments have been rushing to announce that they will introduce e-invoicing and real time reporting systems. In some countries these systems are already operations while in others they are planned to go ahead in the next couple of years.

What we have not seen so far however is an assessment of whether these new systems actually increase tax revenue. To the best of our knowledge there are no studies or assessments of how efficient e-invoicing is in fighting tax evasion and increasing tax revenue.

Most e-invoicing systems have been introduced fairly recently, but nonetheless we have not seen tax authorities reporting a significant increase in revenue after they were introduced. And yet tax authorities seem to be rushing to get them set up in the hopes that they will solve these issues.

Part of the issue with e-invoicing stems from the way these systems are implemented. Unfortunately, there is no overarching standard that covers the way these systems should work. The European Union would like to introduce some standards but things have not been progressing fast enough. Therefore, each country introducing e-invoicing will generally do things differently. The complexity of having to trade in multiple jurisdictions with different VAT systems and (now) different e-invoicing can be a significant issue for small and medium businesses. Additionally, if tax authorities require real time connectivity with their servers as part of the e-invoicing system, then costs can quickly increase if companies have to do this in multiple jurisdictions.

We have also not seen any direct benefits to the taxpayer. For example, one would hope that given the massive amounts of information the tax authorities collect using these systems they would be able to target specific sectors and companies that are not compliant.  Also that they could limit the disruption caused by audits to those companies that are up to date with reporting and payments. Unfortunately, this does not usually happen in practice and extensive amounts of information are still being requested during audits despite some or most of it being already available to the tax authorities.

Coming back to the UK, we should probably not forget how difficult it was to roll out Making Tax Digital for VAT. Will e-invoicing be the same or harder?

Similar to the above, we have not seen any assessment showing MTD has increased revenue, tax compliance, or generally helped HMRC tackle tax evasion and non-compliance. The figures published by HMRC certainly do not show a huge increase in revenue since MTD was introduced if we account for inflation.

We look forward to new developments on this matter and will provide more updates as things progress.