UK Chancellor Unveils Ambitious Tax System Overhaul and E-Invoicing Consultation to Strengthen Economy

On 23 September 2024, the UK Chancellor of the Exchequer announced plans to focus on improving the UK’s tax system to help fix the foundations of the UK economy. 

Included in the package, HMRC will also launch a consultation on electronic invoicing shortly. This will promote the wider use of electronic invoicing across UK businesses and government departments. The consultation will gather input from businesses on how HMRC can support investment in and encourage e-invoicing uptake.

In the press release, HMRC reiterates the many benefits that electronic invoicing may offer.

In a previously published VAT Notice, HMRC outlines the many advantages that electronic invoicing offers. The rapid electronic transmission of documents in a secure environment may provide for:

• structured data for auditing
• improved traceability of orders
• decreased reliance on paper reducing storage and handling costs
• rapid access and retrieval
• improved cash flow
• security and easier dispute handling

This list is not exhaustive, but it indicates some of the principal benefits - all helping to close the tax gap.

It was also announced that a new Digital Transformation Roadmap, set to be released in Spring 2025, will outline HMRC’s plan to become a digital-first organization, driven by customer insights. The Roadmap will also feature initiatives to promote digital inclusion and provide support for customers who are not yet able to engage digitally.

Make sure to follow the eezi blog and ensure that you stay up to date with future communications and mandates from HMRC.

 What is the current situation regarding e-invoicing in the UK?

As outlined by Regulation 13A of the VAT Regulations, VAT invoices in the UK may be issued either in paper or electronic form.  

VAT invoices may be issued in electronic form without prior permission of HMRC. Businesses are free to choose any method of ensuring authenticity, integrity, and legibility to suit their method of operation.

 More details on electronic invoicing

HMRC provides guidance on the sending, receiving, and storing of VAT invoices in electronic format in VAT Notice 700/63. This VAT notice was initially published in 2015 and has been updated twice since Brexit.

The VAT Notice defines ‘electronic invoicing’ as ‘the transmission and storage of invoices in an electronic format without duplicate paper documents. The electronic format may be a structured format such as XML or an unstructured format such as PDF.’

A taxpayer may invoice electronically where the authenticity of the origin, integrity of invoice data, and legibility can all be ensured, and the customer agrees to receive invoices electronically. A taxpayer is free to choose a method of ensuring authenticity, integrity, and legibility that suits their method of operation. Examples of approaches for ensuring authenticity and integrity include:

·       An advanced or ‘qualified’ electronic signature.

·       Electronic Data Interchange (EDI).

·       Business controls that create a reliable audit trail between an invoice and a supply of goods or services.

HMRC will accept electronic invoicing in these circumstances as long as a taxpayer can impose a satisfactory level of control over the authenticity and integrity of their invoice data. Methods of satisfactory control might include:

·       security of networks and communication links

·       access controls

·       message transfer protocols (for example, HTTP)

As long as the relevant invoice messages used contain the required data, HMRC will accept a wide variety of electronic invoice message formats. Examples include:

• traditional EDI standards such as UN/EDIFACT, EANCOM and ODETTE
• XML-based standards
• comma-delimited ASCII, PDF

The taxpayer must check whether their customer’s system can accept invoices in the format they want to use before agreeing with them to invoice them electronically.

According to the VAT Notice, electronic invoices must contain the same information as paper invoices, and when a taxpayer is sending batches of invoices to the same customer, they may record details that are common to the individual invoices once per computer file rather than once per invoice.

 The VAT Notice also outlines the requirements and conditions for the storage of electronic invoices.

A taxpayer must be able to guarantee the authenticity and integrity of the content of their source documents throughout the storage period by either electronic or procedural means, store all the data related to their invoices, including such evidence as is required to demonstrate that authenticity and integrity have been ensured, be able to recreate the invoice data as at the time of its original transmission or receipt, and present the invoice data in a readable format, and keep historic files so that they can find the appropriate details from any particular time in the past if HMRC asks them to do so.

The same rules apply to the storage of electronic invoices as to paper invoices. A taxpayer must normally keep copies of all the invoices you issue and all the invoices you receive for 6 years.

 If your business needs advice or finds the information about e-invoicing daunting and difficult to understand, don't hesitate to contact the eezi team. As leaders in the e-invoicing field, we are experts who can assist businesses and provide guidance in navigating the complexities of electronic invoicing.