ICAS response to the consultation on encouraging e-invoicing

Susan Cattell outlines the ICAS response to a government consultation on encouraging the adoption of e-invoicing across businesses and the public sector.

HMRC and the Department for Business and Trade published a consultation about promoting e-invoicing in February. The aim was to understand how different approaches to e-invoicing might work to improve productivity and help businesses to get their tax right. 

We welcomed the opportunity to respond and to discuss the consultation with some of our members and HMRC at a meeting in March. Key points from our response included:

Standards and interoperability

We agreed that interoperability is essential and will require a common standard for e-invoicing. For multinational enterprises and UK businesses with overseas customers or suppliers, it’ll also be important for any UK standard to support interoperability with international trade partners. 

Our response also stressed that UK e-invoicing systems should be able to accommodate many different invoicing requirements. Businesses often need to provide different information to different clients, incorporating varying levels of analysis or breakdowns of charges. For example, some businesses issuing lengthy invoices (40 or 50 pages). 

If e-invoicing systems cannot deal with a range of requirements, businesses will need to use a second system to provide all the necessary information which would be burdensome, increase costs and remove many of the suggested benefits of e-invoicing. Similarly, if e-invoices can only be generated in a machine-readable format that cannot be read by humans, businesses with both business and non-business customers will require two systems.

All businesses will want to use e-invoicing systems that work with their existing accounting systems. For smaller businesses it will be important that e-invoicing is available as part of existing accounting and Making Tax Digital software packages, to avoid the need to buy new software, retrain staff and transfer data. 

Voluntary or mandatory (and scope)

If e-invoicing remains voluntary or is only mandated for businesses above a certain size threshold, there will continue to be uncertainty about customers accepting e-invoices, which will deter adoption. Running dual systems won’t be attractive. If a single standard for e-invoicing is introduced and there is increased availability as part of accounting packages, over time more businesses might adopt e-invoicing.

However, for businesses that have non-business customers, as well as business customers, the adoption of e-invoicing may remain unattractive, particularly if the number, or percentage, of non-business customers is high. The business would still need to have a system for issuing invoices to non-business customers, so costs would increase, but the potential benefits of adopting e-invoicing would be limited. 

Our response discussed various issues and concerns that would arise from the mandatory adoption of e-invoicing – either for all businesses or for businesses above a certain threshold. 

The consultation also asked how long it would take businesses to implement e-invoicing. In our view this will vary. Some businesses will already be using existing e-invoicing software, but this may need to be upgraded, amended or replaced. Availability of suitable software will be a critical factor, both for existing users of e-invoicing or businesses starting from scratch. 

Feedback we received indicates that some large businesses which needed to implement new systems for e-invoicing would need at least two years to do so. We also understand that in some rural and remote areas high-speed broadband remains unavailable. Expansion of access to broadband should be factored into any plans for rolling out e-invoicing. 

We suggested that if the government decides to proceed with mandatory e-invoicing, the best approach would be to announce that it’ll become mandatory from a future date, but with a realistic timetable, probably at least five years. This would be preferable to setting a short deadline which then has to be deferred when it becomes clear that it’s unworkable. 

Decentralised model

We agreed that the government should focus on a decentralised model. As the consultation notes centralised models do not always improve business efficiency and are costly for tax authorities to implement. 

We don’t believe that it would be practicable for the UK to implement a centralised system. HMRC has increasingly pushed taxpayers towards using third party software. Implementing and maintaining a centralised system would require significant expansion of HMRC resources. HMRC service levels have been an increasing concern in recent years. Without adequate resources to run a centralised system, HMRC delays in processing invoices, and any service outages would cause serious problems.

Real-time (or close to real-time) reporting to the tax authority 

We said that any real-time reporting to HMRC should be automated to avoid imposing additional burdens on businesses. HMRC will also need to ensure that data is securely transmitted and stored. 

Our response noted that having a data feed to HMRC could potentially be helpful to HMRC and to businesses, if HMRC could use it to provide helpful nudges and prompts. However, given the volume of data, we expressed concerns that HMRC would be able to make effective use of the information. 

We also had reservations about the prepopulating of VAT returns, due to concerns about accuracy (other than in very straightforward cases) and possible issues with VAT exempt and reverse charge transactions. Where e-invoicing software is part of accounting software, it’s unlikely that there would be any benefit in prepopulating VAT returns from the e-invoicing system itself anyway. 

We suggested that any move to require real time reporting should not happen at the same time as the implementation of e-invoicing (which would be complex for many businesses) but should be considered as part of a subsequent phase.

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We respond to tax consultations and calls for evidence and attend meetings with HMRC at which service levels, delays and other issues you raise with us are discussed. We welcome input from members to inform our work. Contact us to share your insights and feedback.

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