What is Electronic Invoicing

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Electronic Invoicing (e-invoicing), is the process where invoices are digitally exchanged between suppliers and buyers.  An e-invoice is an invoice that has been issued, transmitted and received in a structured data format which allows for its automatic and electronic processing.

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Electronic invoicing in Europe for businesses and Public Administrations is governed by the EU Standard on e-invoicing with its foundations based on the EU e-invoicing directive.  This model has also been adopted by other non EU countries such as Australia, Singapore, Japan etc. ​

 

Many countries in Europe and around the world have already implemented or are adopting e-invoicing for Business to Government (B2G) (Public Administration) and Business to Business (B2B) invoicing as they continue to move into the digital age. ​

 

Benefits of Electronic Invoicing​:

 

• Eliminates the need to review paper invoices

• Introduces integrated electronic formats into invoicing processes

• Streamlines the Accounts Payable process with E2E automation for invoicing and payments

• Reduces risk and improves accuracy

• Reduces invoicing processing costs as automated

• Enables companies to manage their procurement and invoicing with Government Institutions more efficiently

• Faster processing and payment of invoices

• Facilitates greater ​Electronic Invoicing in Europe

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E-invoicing in the UK

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While e-invoices can be used in the UK, we do not set any standards setting out their format, content, application, or delivery. This means that there is no generally accepted model, and multiple, potentially incompatible, approaches can be in use. The exception to this is suppliers to NHS England who are required to issue e-invoices via the Pan-European Public Procurement On-Line (PEPPOL) network.

Although several accountancy software providers offer e-invoicing capability in the UK, we understand that the uptake of e-invoicing is low. 

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The UK does not currently mandate standards for e-invoicing, other than requirements set by NHS England for their suppliers. For e-invoicing to provide the benefits listed above, all systems need to interact with each other based on common standards, including systems run by different providers. Standardisation will mean suppliers and buyers can exchange e-invoices domestically.

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Why are standards important?

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Interoperability:

 

They facilitate the seamless exchange and automated processing of e-invoices between businesses even if they use a different provider (like sending a text to someone on another phone network) preventing the need to use different systems for each supplier/buyer.

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Network effect:

 

Interoperable systems improve business administration efficiency helping to reduce cost and administrative burdens. E-invoice standardisation reduces the work businesses need to do to onboard and maintain suppliers and buyers on their systems. With higher uptake and improved interoperability these benefits are increased.

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International trade:

 

As increasing numbers of countries adopt e-invoicing models, increasing numbers of UK businesses will need to engage with international systems. Adopting a standard that supports interoperability with international trade partners could support trade and UK businesses.

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Current standards in the UK

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An example of standard setting in the UK is the NHS requirement for suppliers to use the PEPPOL standard. The PEPPOL standard is a network used globally by most EU member states, Australia, Japan and Singapore. E-invoices from suppliers in countries mandating PEPPOL and the UK’s NHS can be processed by IT systems with ease, as they share a common standard. This facilitates automated invoice processing, driving efficiencies across both international trade and domestic transactions.

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Other international standards

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PEPPOL is not the only international e-invoicing network setting standardised format. There are numerous international, and country specific standards driven by regional and national differences as well as industry specific needs. In this consultation we are not looking to identify a specific standard or standards to adopt in the UK but broader views on how standards could be used to support e-invoicing adoption and increase potential benefits.

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Models and approaches

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Voluntary / Mandated

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Globally, many countries have taken different approaches to e-invoicing. This includes whether to introduce a mandate.

Examples of countries who currently have voluntary models of e-invoicing for Business-to-Business transactions include Singapore, New Zealand and Australia. Each of these countries has introduced standards for software providers to adhere to, to support interoperability between businesses who choose to adopt e-invoicing. Adoption levels have varied between jurisdictions, sectors and business size.

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Conversely, countries across Latin America, Asia and Europe and several EU member states have introduced mandates for e-invoicing. Businesses falling within a mandate are required to issue and receive e-invoices for all relevant transactions.

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In the UK, a business can choose whether to adopt e-invoicing systems into their business systems. Under this voluntary system we are seeing increasing number of software providers including e-invoicing as part of their accounting packages. This does carry risk as a business does not know if their supplier will provide e-invoices or their customers will accept them, creating the potential for having to run dual systems.

 

This may reduce the potential benefit of investment. The network effect created by a mandate could maximise the potential benefits of e-invoicing.

What is included in mandates varies globally. Examples for Business-to-Business and Business-to-Government transactions could include (but are not limited to):

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• Requiring that e-invoices are issued for all Business-to-Business supplies

• Requiring that e-invoices are issued for all Business-to-Government supplies

• Requiring all businesses over a certain size to be able to receive e-invoices

• Requiring all businesses over a certain size to both issue and receive e-invoice

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E-invoicing models

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When considering different models of e-invoicing, a key question is whether a model has centralised or decentralised platforms. With a centralised model, e-invoices are submitted to the tax authority before being issued to the buyer. With a decentralised model, there is no central ‘hub’ through which invoices are routed, with businesses submitting their invoices through their software providers direct to their customers.

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Centralised models


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Centralised models have been implemented in several countries (such as Italy and Chile) and they require the government to build a centralised system and process all invoices. This model does not always improve business efficiency and is costly for tax authorities to implement, and we do not plan to explore this model in detail.

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1. Supplier creates e-invoice and submits to the Central Platform.

2. Central Platform receives the e-invoice and takes any required actions before issuing on to the Customer. This could include standardising, retrieving data or validating and clearing.

3. Customer receives and processes the e-invoice.

4. Payment issued to supplier.

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Decentralised models

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In a simple decentralised e-invoicing system, a supplier’s financial system generates an invoice for the buyer. This information is passed through the invoicing network which validates key information. This information is then passed to the buyer’s financial system where it is reconciled against the purchase details and is ready to be paid.

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This is also sometimes known as a 4-corner model and has been implemented in Belgium and Australia.

Businesses use software providers to issue and receive invoices. When Business A issues an invoice to Business B, they upload it onto their e-invoicing platform. Business B then receives it via their platform and it automatically enters their accounting software. Business B can then check the invoice and either query it or issue payment.

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4-corner’ model 

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1. E-invoice created by supplier​

2. Supplier’s software provider issues e-invoice​

3. Customer’s software provider receives and processes e-invoice ​

4. Customer issues payment to supplier

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Decentralised models can be complementary to Making Tax Digital and further build on the business and tax benefits observed in the digitalisation of business records. They also provide greater flexibility to businesses to choose a platform and supplier that fits within their business needs.

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Real time reporting and Continuous Transaction Controls (CTC)

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Both centralised and decentralised models offer the opportunity for real or near real-time reporting of transactional data to the tax authority and has been implemented in a number of countries (such as Hungary and South Korea). This data transfer could potentially be automated to support and simplify businesses tax reporting processes and improve tax compliance activity.

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Decentralised data share model may work as follows:

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There are variations in how this is actioned globally​:

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1. E-invoice created by supplier​

2. Supplier’s software provider issues e-invoice​

3. Customer’s software provider receives and processes e-invoice ​

4. Customer issues payment to supplier​

5. E-invoice data is shared in real time, or close to real time with the tax authority. This can occur at the same time the e-invoice is issued, or shortly after.

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The image shows an example of how a centralised data share model may work. 

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There are variations in how this is actioned globally:​

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1. Supplier creates e-invoice and issues through the Central Platform​

2. Central Platform reads the required data and issues the invoice to the Customer​

3. Customer receives and processes the e-invoice

4. Payment issued to supplier

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Real-time reporting requires businesses to submit transactional data to their tax authority in real or near real-time. CTC and Decentralised CTC and Exchange (DCTCE) models contrast to the current VAT system as they allow tax authorities to better estimate VAT income, detect discrepancies, identity fraud and support businesses to get their tax right.

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By building in a data feed to HMRC, it could enable HMRC to take further steps to simplify tax reporting, reduce error and support businesses to get their tax right. This could include:

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• improving accuracy of the VAT return and facilitate nudges and prompts to reduce errors

• more targeted compliance activity reducing the need for compliance engagement and visits to compliant businesses supporting HMRC efficiency​​

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A data feed also provides potential wider benefits for government efficiency:

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• provides an improved understanding of the economy

• possibility of using data for business support schemes (for example, in emergency situations similar data has been used to develop and implement business support)​​

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The inclusion of a data feed can also be implemented later following the creation of a decentralised system without data sharing.​​​​

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For more in-depth understanding of the EU e Invoicing Directive and the current status of e invoicing globally for B2G (Business to Government), G2G (Government to Government), B2B (Business to Business) and B2C (Business to Consumer), please use the links below.

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Europe

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e Invoicing Country Factsheets for each Member State and other countries (europa.eu)

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Malaysia​ Tax Authority - e invoicing​

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https://www.hasil.gov.my/en/e-invoice/

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Singapore Government Agency - e invoicing

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https://www.imda.gov.sg/how-we-can-help/nationwide-e-invoicing-framework​

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For more of a detailed and interesting read on global e - invoicing and mandates and challenges faced with implementation of E - Invoicing, please see links below.

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E-invoicing compliance simplified: Global mandates and trends    (Source - Gulf News Feb 24)​

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2024 Guide to Global e-Invoicing Mandates Position Paper | OpenText 

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https://www.pagero.com/uk/blog/what-is-an-e-invoice

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(Note these links are displayed here for information purposes only and are not intended to convey ownership or endorsement)

 

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Please see below e invoicing country snapshots for B2G / B2B / B2C including implementation timelines.  

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