Complying with e-Invoicing regulations

Kathya Capote Peimbert at Vertex explains the business imperative of real-time e-invoicing amid regulatory changes

 

The HMRC’s recent consultation on electronic invoicing (e-invoicing) marks a pivotal moment in the UK’s push toward modernising tax compliance. This initiative aligns the UK with the EU’s VAT in the Digital Age (ViDA) framework, both of which aim to enhance efficiency in tax reporting and real-time compliance.

 

While e-invoicing is not a new concept - it has been in use for over two decades - an increasing number of countries are making it mandatory for certain transactions. Today, approximately 130 countries have either adopted or are in the process of implementing e-invoicing frameworks, establishing clear data and format requirements.

 

The global shift towards standardised e-invoicing is driven by the need to streamline operations, improve accuracy, and reduce costs. Industry estimates indicate that e-invoicing can lower invoicing expenses by 60-80%. For UK businesses, keeping pace with these developments is essential to maintaining competitiveness in international markets. 

 

What is e-invoicing and where is the UK

E-invoicing is the digital exchange of invoices in a structured format that allows for automated processing, eliminating the need for paper-based or PDF invoices. Unlike traditional invoicing, which requires manual entry and verification, e-invoices are generated, transmitted, and processed electronically through standardized formats such as XML or UBL. This enables seamless integration with accounting and ERP systems. It also improves efficiency, reduces errors, and ensures compliance with tax and financial regulations.

 

Despite the availability of e-invoicing capabilities in many accounting software solutions, adoption remains low in the UK. Currently, e-invoices are permitted in the UK, but there are no established standards governing their format, content, or application. As a result, businesses use multiple, often incompatible, approaches. The only exception is suppliers to NHS England, who must use the Pan-European Public Procurement On-Line (PEPPOL) network.

 

However, the potential benefits are significant: 

• Increased efficiency – Reducing administrative burdens and processing costs.
• Improved cash flow – Faster payments and better financial visibility.
• Simplified tax reporting – Minimising errors and aiding compliance with tax obligations.

 

Embedding compliance into operations

As real-time e-invoicing becomes the norm, businesses must rethink their approach to tax compliance. Traditionally managed as a separate function, tax reporting is now being integrated into transactional workflows. This shift requires companies to embed compliance within their order-to-cash and procure-to-pay processes.

 

The impact is substantial – businesses must invest in system upgrades to prevent inefficiencies, delays, and penalties. Research from Vertex highlights the challenge: 62% of companies publicly report non-compliance issues, while 75% struggle internally to keep up with evolving tax mandates.

 

To remain both compliant and competitive, businesses need a strategy that combines technology investment, process optimisation, and resource allocation.

 

 

Making compliance a business priority

Delaying compliance can result in costly, last-minute fixes. Instead, businesses should take a proactive approach to ensure smooth regulatory adaptation. Key steps include: 

• Staying informed – Engaging with tax authorities, industry bodies, and compliance experts to anticipate changes.
• Automating tax compliance – Leveraging technology to reduce human error and enable real-time tax filing.
• Investing in scalable solutions – Implementing flexible systems that can adapt to new regulations, particularly for businesses operating across multiple jurisdictions.
• Managing risk– Identifying high-risk areas in tax processes and allocating resources accordingly to mitigate potential exposure.

 

Approaches to real-time e-invoicing

As businesses worldwide transition to real-time e-invoicing, three primary models have emerged: 

1. Post-audit model: Invoices are exchanged directly between trading partners without real-time government oversight. Tax authorities retain the right to audit invoices retrospectively.
2. Clearance model: Invoices must be submitted to and approved by the tax authority (or a government-certified platform) before they are legally valid and can be exchanged between trading partners. Tax authorities may also require detailed reporting and validation of invoices in real-time or near real-time.
3. Hybrid model: This model often involves continuous transaction controls (CTC), where transaction details are reported continuously to the tax authority, but the invoice itself can still be exchanged directly between trading partners. It combines elements of real-time reporting and post-audit mechanisms.

 

Preparing for ViDA and future regulations

With HMRC’s consultation underway, businesses must prepare for upcoming regulatory changes and anticipate future compliance shifts. By staying informed, engaging in industry discussions, and investing in adaptable e-invoicing solutions, companies can position themselves for success in an evolving regulatory landscape.

 

The digitalisation of tax compliance is an ongoing process. Businesses that embrace this transformation proactively will be better equipped to thrive in a rapidly changing business environment.

 

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Kathya Capote Peimbert is Global E-Invoicing Solutions Principal at Vertex

 

Main image courtesy of iStockPhoto.com and HAKINMHAN