HMRC and the Department for Business and Trade have released their consultation outcome, 'Promoting electronic invoicing across UK businesses and the public sector'. As a result of the consultation, the government is introducing mandatory electronic invoicing for all VAT invoices from 2029.
Electronic invoicing or 'e-invoicing' is the digital exchange of invoice data between a buyer and a supplier's financial systems.
Autumn Budget 2025 announced that all VAT invoices must be issued as an e-invoice from 2029. The government plans to announce a detailed roadmap implementing the mandatory e-invoicing for VAT at Budget 2026.
The government has stated that whilst they believe electronic invoicing offers benefits such as tax compliance, increased efficiency, and the ability to address late payments, take-up by businesses in the UK so far has been low. It believes that growth, administrative benefits and increased revenue can be optimally achieved by the introduction of e-invoicing.
Consultation
This consultation sought views on how to standardise e-invoicing and encourage its wider use across businesses in the UK.
Topics explored in the consultation included:
- Different models of e-invoicing with both centralised and decentralised platforms being considered.
- With a centralised model, e-invoices are submitted to the tax authority before being issued to the buyer. The consultation states that this model does not always improve business efficiency and is costly for tax authorities to implement, as the government has to build a centralised system. HMRC does not plan to explore this model in detail.
- With a decentralised model, there is no central ‘hub’ through which invoices are routed. Businesses submit their invoices through their software providers directly to their customers.
- Whether to take a mandated or voluntary approach to e-invoicing.
- What scope of mandate might be most appropriate in the UK and for businesses:
- Options include mandating e-invoicing based on business size or based on the recipient of the supply (e.g. for business-to-business supplies or business-to-government supplies).
- Whether e-invoicing should be complemented by real-time or near-real-time digital reporting, where transactional data is submitted to the tax authority.
- It was suggested that this would allow HMRC to take further steps to simplify tax reporting and assist businesses in getting their taxes correct.
The consultation received 342 responses from a range of tax advisors, businesses and industry representative bodies. There was considerable interest in the adoption of e-invoicing amongst businesses.
Respondents in support of e-invoicing listed benefits as:
- Faster payments.
- More efficient processing of invoices.
- A reduction in fraud.
- Improved tax and regulatory compliance.
- Cost savings by eliminating the requirement for paper invoices.
- Greater transparency of audit trails making it easy to resolve disputes and track status.
However, there was concern that introducing mandatory e-invoicing would present challenges, such as increasing administrative loads and increased costs.
There was a strong view that e-invoicing would work best when a wide network of businesses all used the technology. Several respondents suggested that without a mandate, the uptake would continue to be low.
There was emphasis on the need for support, training and education to ensure the successful implementation of e-invoicing.
The government states that they are committed to the ongoing collaboration between HMRC and the Department for Business and Trade in developing a strategy for e-invoicing.
Responses
Knowledge of e-invoicing
Most respondents were already aware of e-invoicing and identified as current users, which reflects that there are already businesses benefiting from the system
- Some users reported ceasing the use of e-invoicing due to customer access issues and software constraints.
- Current users reported:
- Faster processing times.
- Reduced reliance on the postal service.
- Cost savings.
- Improved data accuracy.
- Some users found e-invoicing cumbersome to implement, and software costs, training, disruption and limited integration with current systems were cited as barriers.
Overall, respondents demonstrated a broad awareness of e-invoicing, with many respondents seeing e-invoicing as a tool for improving internal governance and investor confidence.
One software provider cited that their research found that e-invoicing reduced late payments by 20%.
Concern was also raised for small businesses facing additional costs and the complexity of implementing an electronic system.
Tax reporting
Respondents were asked to submit details on the number of invoices, cost and processing time for each month.
- There was a significant variation in the average cost and processing time, which indicates the diversity of systems and business models.
- Costs ranged from negligible value to over £50 per invoice.
- Processing times ranged from seconds to several weeks.
- The government has stated that while this does not give a representative sample from which they can generalise across the economy, the results provide insight into the efficiency and economy.
- It was also noted that around half of the respondents did not currently use bridging software.
Policy objective
Many respondents noted the benefits of e-invoicing with its potential to improve accuracy and support broader digital transformation.
Highlighted benefits of the new policy were:
- Enhancing transparency, accountability and fiscal oversight.
- Improving VAT management to support reducing the VAT gap.
- A step closer to increased digitalisation and automated tax compliance.
Overall, e-invoicing was viewed as a catalyst for modernising financial operations and providing more efficient, secure and sustainable practices.
- There was concern over the costs of implementing an e-invoicing system for small businesses. The government believes that e-invoicing has a smaller average cost than processing paper invoices, but highlighted that a low-cost solution will be a priority.
- Many respondents believed that small businesses should not be required to adopt e-invoicing, whilst many others think the policy should be mandatory to ensure the benefits are fully realised across all sectors.
- It was also noted that e-invoicing can work well alongside Making Tax Digital (MTD), making the implementation easier since VAT-registered entities already use software to meet MTD requirements.
Standardisation
Currently, the UK allows businesses to choose what system they use for invoicing. For e-invoicing to deliver optimal benefits to businesses, the digital exchange of information between enterprises must be seamless.
- Standardisation across businesses will reduce administrative burdens and onboarding costs.
- It will also support international trade as more countries adopt e-invoicing frameworks.
- Many respondents favoured a UK-wide standard to reduce duplication and promote digital exchange of information, particularly across borders.
- Harmonised data standards would likely improve efficiency.
- Structured data was recognised as essential for tax, legal and audit compliance, with emphasis on VAT numbers, invoice numbers and digital signatures.
- There was a call to use formats already in use in the UK and EU.
- Despite these suggestions, the need for flexibility was widely supported.
Voluntary and mandatory approaches to e-invoicing
Many respondents suggested some form of mandate would be required to encourage uptake of e-invoicing.
- It was recommended that there be clear policy direction and strong government-led training to support a mandated system.
- Some respondents suggested that financial support be given in the form of grants, tax reliefs and affordable software solutions.
- Sufficient lead-in time before mandatory e-invoicing was introduced was a key theme.
- There was a wide view on the timescale needed to implement the system, some believing a year was sufficient, whilst some only required six months.
- The main barrier to mandatory e-invoicing was costs, particularly for SME's. Other issues were:
- Costs of training staff.
- Software costs.
- Complexity of integrating with current systems with limited IT support.
- Cybersecurity concerns.
Centralised and decentralised models
In a centralised model, e-invoices are submitted to a centralised government platform before being validated and then forwarded to the supplier.
Decentralised systems allow businesses to exchange e-invoices directly through chosen software.
- The majority favoured a decentralised model, with many suggesting that this reduces reliance on government infrastructure.
- It was thought this would be flexible and align with existing business practices.
- The decentralised 4-corner model appeared to be the most favoured.
- Concerns were raised about compliance risks and technical burdens for SME's.
- Some respondents favoured a centralised system due to fraud prevention and audit control.
- Clear instruction, support and implementation plans were all cited as critical to any model's success.
Real-time reporting and Continuous Transaction Controls (CTC)
The responses were mixed on Real-Time Reporting (RTR); some respondents cited benefits such as improved VAT compliance, fraud reduction and streamlined tax processes. Others raised concerns on administrative complexity, technical challenges and data privacy.
The respondents welcomed the suggestion of prompts and pre-populated VAT returns, while some noted that invoicing alone would not be sufficient to produce a pre-filled VAT return, as VAT invoices are not issued on all transactions.
- Several respondents welcomed implementing RTR within e-invoicing for B2B and B2G transactions.
- It was thought that RTR was a logical and overdue step in the UK's digital tax evolution.
- Some respondents viewed it as transformational if implemented seamlessly.
- It was believed that RTR could simplify tax reporting and increase efficiency.
- A small number of respondents raised concerns about integration challenges and data risks under GDPR.
Support and engagement with businesses
Many respondents requested that consideration be given to the provision of financial support for the implementation of e-invoicing. Many felt that with support, there might be operational challenges for businesses.
- It was thought by some that e-invoicing could place undue pressure on micro-enterprises.
- Suggestions were made that mandatory e-invoicing only applies to businesses with a turnover above a certain threshold.
- It was also highlighted that affordability may be disproportionate for small and low-invoicing businesses.
- It was emphasised that clear, timely and accessible guidance be available from HMRC.
- There were suggestions of public awareness campaigns and transparent communication channels.
Further developments
Respondents strongly favoured a national framework for e-invoicing, aligning with international standards. A decentralised model was favoured to improve compliance and transparency.
- Clarity was required on scope, including B2B, B2G and cross-border transactions.
- Cybersecurity, data protection compliance and a robust infrastructure were all highlighted as concerns.
- A strategic approach with pilot programmes and co-design was recommended.
- Despite all the benefits of e-invoicing, there were significant concerns around the costs, which will need to be addressed.
- Clarity was required on the compliance framework, focusing on the nature and scale of penalties for non-compliance.
- The government has said it will work with stakeholders to develop an approach to these issues and test potential solutions.
Conclusion
There was a broad range of views, with the government using these insights to set its direction on e-invoicing at Budget 2025.
The government continue to welcome stakeholders' options to assist in shaping a strong and effective approach to e-invoicing that will deliver real value to UK businesses.
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External link
HMRC: Promoting electronic invoicing across UK businesses and the public sector