UK government consultation sparks debate on e-invoicing adoption

The UK government has launched a consultation to explore the wider adoption of electronic invoicing (e-invoicing) in business transactions, a move that could lead to real-time reporting of transactional data to HMRC.

The consultation, which runs until 7 May 2025, seeks input from businesses and industry bodies on whether e-invoicing should become standardised, whether adoption should be voluntary or mandated, and how it might integrate with the UK’s tax system.

While the transition to e-invoicing is still at an early stage, the consultation signals a growing shift towards digital tax compliance and financial automation. The government has positioned e-invoicing as part of a broader effort to modernise business processes, reduce administrative burdens, and improve tax compliance.

However, businesses will need to weigh the potential efficiency gains against the costs and complexities of implementation.

A Shift Towards Digital Invoicing

E-invoicing refers to the automated digital exchange of invoice data between suppliers and buyers in a structured format, eliminating the need for manual input, paper invoices, and even emailed PDFs. Unlike traditional invoicing, e-invoicing integrates directly with accounting and enterprise systems, improving efficiency and reducing errors.

This move aligns with the government’s broader digitalisation agenda, which has already seen the introduction of Making Tax Digital (MTD) for VAT and income tax. However, e-invoicing presents a more complex challenge, requiring a robust framework to ensure interoperability across different financial systems.

The consultation will assess whether e-invoicing should remain voluntary or be mandated for certain transactions, such as business-to-business (B2B) and business-to-government (B2G) exchanges. It will also consider whether e-invoicing should be complemented by real-time digital reporting, a model already implemented in countries like Italy and South Korea.

How Does the UK Compare to Other Markets?

E-invoicing adoption varies significantly across the globe. According to the government’s consultation document, approximately 130 countries have introduced or are in the process of implementing e-invoicing systems. The European Union has also placed e-invoicing at the centre of its ‘VAT in the Digital Age’ (ViDA) reforms, set to be rolled out in 2030.

Latin America has led the way in mandating e-invoicing, with countries like Brazil, Mexico, and Chile using government-controlled systems to reduce VAT fraud. Meanwhile, Italy introduced mandatory e-invoicing in 2019, claiming to have recovered over €4 billion annually in lost tax revenue since its implementation.

Closer to home, Singapore, Australia, and New Zealand have taken a voluntary approach, providing businesses with the option to adopt e-invoicing while setting clear technical standards.

In the UK, the use of e-invoicing remains low and fragmented, with no universal standard dictating format, content, or application. The NHS is one exception, requiring suppliers to use PEPPOL (Pan-European Public Procurement On-Line), a standard also used by many EU countries, Australia, and Japan.

Potential Models: Centralised vs. Decentralised

A key aspect of the consultation is identifying the most suitable e-invoicing model for the UK. Globally, two primary models have emerged:

• Decentralised model (four-corner system): Used in Belgium and Australia, this system allows businesses to select their preferred software providers, who handle invoice exchanges between suppliers and buyers. This approach ensures greater flexibility but relies on interoperability between multiple service providers.

• Centralised model: Found in countries like Italy and Chile, this system requires invoices to be processed through a government-run portal before they are approved for issuance. While this provides tax authorities with real-time oversight, it creates a single point of failure and requires significant government investment in infrastructure.

The consultation asks whether the UK should mandate e-invoicing for B2B or B2G transactions and whether businesses should report invoice data directly to HMRC in real time.

Business Impact: Costs vs. Benefits

Advocates of e-invoicing highlight its potential to reduce administrative costs, improve payment cycles, and enhance fraud detection. A report by Sage, based on a survey of 9,000 European SMEs, estimated that e-invoicing could save small businesses up to €13,500 annually by reducing the time spent processing invoices.

Additionally, automated invoicing minimises errors and fraud risks, particularly invoice interception schemes where criminals alter payment details. For HMRC, real-time reporting could improve VAT compliance and help narrow the UK’s tax gap, which stood at £36 billion in 2023, according to official figures.

However, critics warn that imposing e-invoicing mandates could create additional compliance burdens, particularly for small businesses. Depending on the model chosen, businesses may have to run dual invoicing systems—one for e-invoicing and another for traditional invoicing—adding complexity rather than reducing it.

Real-Time Reporting: A Game Changer?

If real-time transactional data reporting is introduced alongside e-invoicing, HMRC would receive invoice information at the point of issuance or shortly thereafter, rather than waiting for businesses to submit VAT returns. This approach has already been implemented in Hungary and South Korea, allowing tax authorities to conduct real-time audits and issue automated compliance alerts.

The consultation outlines several potential advantages of integrating e-invoicing with real-time reporting, including:

• Greater VAT accuracy: Businesses could receive automated prompts to correct errors before submitting returns.
• Reduced compliance interventions: HMRC could conduct targeted audits, minimising disruption for compliant businesses.
• Improved economic data: Access to real-time transaction data could enhance the government’s ability to monitor business activity and respond to economic shifts.

What Happens Next?

Once the consultation closes on 7 May 2025, the government will review submissions and outline a framework for e-invoicing adoption. The findings are expected to be incorporated into the Autumn Budget 2025, with a roadmap for implementation to follow.

While the consultation signals a step towards digital invoicing, full-scale adoption—particularly if mandates are introduced—is unlikely before 2030.

Businesses, industry groups, and finance professionals can respond to the consultation by submitting feedback to [email protected]