Ed Saltmarsh breaks down the government’s consultation on e-invoicing and what it could mean for UK businesses.
E-invoicing, or electronic invoicing, is quickly becoming a key part of modern business and tax systems worldwide. In simple terms, it’s the digital exchange of structured invoice data directly between suppliers and customers. It aims to automate tasks and cut down on the inefficiencies and costs associated with paper invoices.
More than 100 countries are either already using or are in the process of implementing e-invoicing mandates. This global shift is driven by the promise of efficiency, lower administrative costs, better supply chain visibility and – importantly for governments – stronger tax compliance and revenue collection.
Now this digital wave is hitting the UK. HMRC and the Department for Business and Trade launched the consultation Electronic invoicing: promoting e-invoicing across UK businesses and the public sector on 13 February 2025. While the consultation aims to gather opinions on standardising e-invoicing and boosting its adoption in the UK, it also signals that e-invoicing is on its way and this is our chance to shape how it will look.
The building blocks of e-invoicing
The core of e-invoicing is the digital creation, exchange and processing of invoices. A business generates an invoice using a structured data format. This digital invoice is then electronically transmitted to the recipient. Crucially, the recipient’s accounting software is designed to automatically interpret and process this structured data. This ensures accurate data capture and seamless recording within their systems. This automated process not only speeds up invoicing, but also significantly improves data accuracy and reduces the risk of those inevitable human errors associated with manual input.
Looking at it in a different way
To understand e-invoicing better, it might be helpful to think about its fundamental building blocks and to do so, I thought I’d use the fundamental building blocks to make my point…
So, imagine eXtensible markup language (XML) as a set of individual Lego bricks. Think of all those different types of Lego bricks – 2x4 bricks, 1x1 bricks, flat plates, etc. XML is like having all these various Lego brick shapes and types available. It’s the fundamental set of building blocks for digital information. XML provides the structure – the way these bricks can connect – but on its own, it doesn’t tell you what to build.
Now, if you want to build something specific and useful, you can’t just use any random pile of Lego bricks. You need the right Lego bricks for the job. This is where universal business language (UBL) comes in. UBL is like having a box of Lego bricks specifically for building an e-invoice – which I’m sure will be a wildly popular set. It contains all the right kinds of bricks you’ll need.
However, even with the right set of Lego bricks (UBL), you still need to know exactly how to put them together to make a valid and working e-invoice that the system will understand. That’s where Pan-European Public Procurement Online (PEPPOL) Business Interoperability Specifications (BIS) comes in. PEPPOL BIS is like the detailed instruction manual for building a very specific Lego model – in this case, an e-invoice that is not only structurally sound but also legally compliant and automatically processable within the PEPPOL system.
And finally, to get your completed Lego e-invoice to your business partner, you need a delivery service – the PEPPOL network. The PEPPOL network is like a reliable postal service or courier specifically designed for delivering these Lego e-invoice models from one business to another, securely and efficiently.
Also, just as there are alternatives to Lego (think Playmobil and Meccano), there are alternatives to XML, UBL, PEPPOL and PEPPOL BIS.
OK, so the analogy isn’t perfect, but hopefully you get the picture.
The consultation
The consultation gives an overview of the e-invoicing landscape and the government’s goals for its widespread adoption in the UK. It hints at a future push towards mandatory e-invoicing, noting that it’s essential for modernising the UK economy.
However, the path to mandatory e-invoicing isn’t set in stone. The consultation asks whether e-invoicing should become compulsory and, if so, for whom? It considers various approaches, from a universal mandate for all VAT-registered businesses to a phased implementation that might start with larger enterprises or businesses supplying the public sector. E-invoicing is already mandatory for some public sector procurement, notably for suppliers to NHS England.
The path to mandatory e-invoicing isn’t set in stone. The consultation asks whether e-invoicing should become compulsory and, if so, for whom?
Realistic and practical timelines for implementation are a major concern. If the government decides to pursue mandatory adoption, the consultation seeks views on achievable timescales. The government acknowledges the need to give businesses enough lead time – probably years rather than months – to adapt their systems, invest in new software, train staff and manage the transition smoothly.
The consultation stresses the importance of establishing common technical standards that all e-invoicing systems must follow. Interoperability – the ability for e-invoices to be easily exchanged and processed between different systems – is key to successful widespread adoption.
The benefits
There are many expected benefits of e-invoicing. The government highlights potential upsides for businesses and the wider UK economy, such as enhanced productivity, reduced compliance costs and environmental benefits from less paper usage. The primary goal of the consultation is to standardise e-invoicing and encourage its uptake in the UK, but there’s a broader aim to modernise the UK economy and tax system.
The consultation document paints an optimistic picture of e-invoicing, detailing numerous potential benefits for UK businesses. The projected efficiency gains are undeniably attractive. For businesses struggling with paper invoices, the promise of automated invoice processing, streamlined workflows and reduced administrative overheads is compelling. These changes could lead to significant time and cost savings, freeing up resources for more strategic activities. A Sage report estimates potential labour productivity gains from introducing e-invoicing in the UK of 3%.
Faster payment cycles are another significant advantage, especially for smaller businesses. E-invoicing can speed up payment processes through near-instantaneous electronic transmission of invoices and automated processing, reducing delays from postal delivery and manual handling. This acceleration could positively impact business cash flow, particularly for small and medium-sized enterprises (SMEs) sensitive to payment delays. The same Sage report found that e-invoicing can reduce late payments by 20%.
The promise of automated invoice processing, streamlined workflows and reduced administrative overhead is compelling
Reduced errors and disputes are also compelling. Automated data extraction and validation can significantly minimise errors from manual invoice processing, reducing discrepancies and payment disputes. This leads to smoother reconciliation processes and improved financial record accuracy.
Electronic invoices also create more robust audit trails. The digital format makes it easier to store, retrieve and analyse invoice data, helping businesses track transactions, demonstrate VAT compliance and respond efficiently to VAT enquiries.
Another significant driver of the consultation is the potential to combat VAT fraud and unintentional errors in VAT reporting. Making Tax Digital for VAT helped reduce errors, but e-invoicing offers greater transparency, traceability and auditability – potentially reducing the VAT gap.
In an interconnected global economy, the consultation acknowledges the importance of e-invoicing in facilitating international trade. E-invoicing is becoming the global norm in international transactions. By adopting internationally recognised e-invoicing standards, the government aims to align the UK with global trends and reduce friction for UK businesses engaged in international commerce.
Finally, while not perhaps the primary driver, e-invoicing generally brings environmental benefits, with a significant reduction in paper use compared with traditional invoicing.
Challenges ahead
Given the impressive potential benefits, why does the government need to consult on increasing e-invoicing uptake? Why are businesses not implementing e-invoicing of their own volition?
The biggest hurdle is the cost and complexity of implementation, especially for smaller businesses. Large businesses may have dedicated IT departments and sufficient budgets to manage the transition to e-invoicing smoothly, but many SMEs operate with tighter budgets and basic accounting systems.
The upfront costs of upgrading software, investing in standalone e-invoicing solutions and training employees can be significant. Supporting SMEs with any mandated transition will need to be considered as part of the consultation.
The other key point to note is that for e-invoicing to deliver on its potential benefits, there needs to be seamless interoperability across the business landscape. It is not particularly useful being able to issue e-invoices if your customers can’t receive them, and vice versa. Therefore, it is possible that some businesses, while tempted by e-invoicing, are choosing to wait until standards have been set and uptake is increased. Just as many people are waiting until there are more electric car chargers to make the switch to electric, many businesses are waiting until more of their supply chain use e-invoicing before they commit. But it’s chicken-and-egg, which is why this consultation is so important.
For e-invoicing to deliver on its potential benefits, there needs to be seamless interoperability across the business landscape
Data security and data privacy may be another concern for business. The electronic transmission and storage of sensitive financial data necessitates robust data security measures. Businesses must be confident that their e-invoicing systems are protected against cyber threats and data breaches, while also complying with data protection regulations such as UK General Data Protection Regulation.
Finally, for businesses engaged in international trade, the issue of international compatibility and navigating cross-border e-invoicing requirements is of significant practical importance. Different countries and trading blocs are adopting diverse e-invoicing standards and compliance requirements. The consultation needs to consider how the UK e-invoicing framework can be designed to minimise friction for international trade and promote interoperability with key trading partners’ systems.
Call to action
It’s crucial for businesses of all sizes to engage with the consultation process. Your feedback will help shape the future of e-invoicing in the UK, not only ensuring it meets the needs of business but that it maximises the benefits.
Businesses and individuals can respond directly to the consultation by 7 May 2025. Alternatively, please feed any comments to me for inclusion in ICAEW’s response to the consultation by Monday 14 April.
Ed Saltmarsh, Technical Manager, VAT and Customs, ICAEW
