United Kingdom: UK e-invoicing and digital reporting developments – November 2023

Status of e-invoicing and digital reporting rules in the UK

There is no legislation in force, in the legislative process, or that has been formally proposed, at the time of writing that specifically addresses e-invoicing or real time VAT reporting that has/would have general application in Great Britain. Businesses that chose to issue e-invoices therefore do so voluntarily, and with the consent of their customers.

Similarly, no UK domestic legislation is in effect or has been proposed that would give effect to e-invoicing or real time reporting in Northern Ireland. However, it is possible that businesses operating in Northern Ireland will be required to adhere to the European Union’s VAT in the Digital Age (“ViDA”) proposals if/when they are implemented.  There is currently little detail on how supplies involving Northern Ireland would be managed under ViDA.

The only exception to the above relates to suppliers to the NHS (National Health Service) who, under UK Government procurement rules, have had to issue e-invoices for their supplies since 31 March 2022.  This follows directly from the UK’s limited implementation of EU Directive 2014/55 (public sector procurement, rather than tax, legislation).

What has already been implemented?

The UK Tax Authority, HMRC, has sought to introduce digital VAT reporting in the UK via its Making Tax Digital for VAT (MTDfV) program.  The initiative has three components to which affected businesses must adhere relating to digital record keeping, ‘digital links’ (i.e. the creation and maintenance of an electronic audit trail between the core VAT account data and the data included in the VAT return), and digital VAT return submission.  The rules were enacted through secondary law: the Value Added Tax (Amendment) Regulations 2018 (SI 2018 No. 261) and The Value Added Tax (Amendment) Regulations 2021 (2021 No. 986) and had to be adopted by most UK VAT registered businesses in full in relation to any UK VAT returns that were due to be submitted on or after 1 April 2022.  

Anticipated future developments

Whilst the three core components of MTDfV do not include general e-invoicing or real-time reporting requirements, they are generally recognised as necessary enabling steps on the journey towards the creation of a digitized tax system, which HMRC views as critical to closing the UK tax gap. It is accepted that such a system would likely have to incorporate e-invoicing and real-time reporting to be considered truly digital and achieve HMRC’s stated aim, although it remains to be seen whether such a system is ultimately capable of being implemented. 

In the interim, HMRC’s focus is on securing taxpayer compliance with the MTDfV rules and extending the scope of the regime to other taxes. Making Tax Digital for Income Tax (MTDfIT) will be phased in from 6 April 2026 and will be mandatory for self-employed individuals and landlord earning over certain thresholds (initially £50,000 per annum, and £30,000 from April 2027). HMRC also intends on introducing Making Tax Digital for Corporation Tax, although the timeframe for implementation is uncertain: HMRC’s original intention was to implement the scheme from 2026, but no formal timeline has been announced and implementation before 2030 is now considered unlikely.

Implications of the current/future changes, and challenges

Where e-invoicing is used, businesses need to guarantee the integrity, authenticity, and availability of these documents in the same way that they do for non-electronic invoices.

Client discussions

Clients of FTI Consulting in the UK have largely adopted the MTDfV rules and, insofar as domestic project are concerned, are either focused on maintenance or optimisation efforts. International clients are also concerned about the potential systems and data challenges proposed by the EU’s VAT in the Digital Age (“ViDA”) and emergent e-invoicing rules – not least because of the number and variety of these regimes.

FTI Consulting – UK Indirect Tax team

November 2023

Sources:

HM Treasury. (2023, January 18). EXPLANATORY MEMORANDUM FOR EUROPEAN UNION VAT IN THE DIGITAL AGE LEGISLATIVE PROPOSALS AND THEIR IMPACT ON NORTHERN IRELAND. Retrieved November 6, 2023, from assets.publishing.service.gov.uk: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1130304/Explanatory_Memorandum_-_VITDA_-_C-2022_-_701_703_704_Signed_by_the_Financial_Secretary_to_the_Treasury_Victoria_Atkins_18.01.23.pdf

European Commission. (n.d.). eInvoicing in the United Kingdom. Retrieved November 6, 2023, from ec.europa.eu:  https://ec.europa.eu/digital-building-blocks/wikis/display/DIGITAL/eInvoicing+in+the+United+Kingdom

HM Revenue & Customs. (2022, December 19). Overview of Making Tax Digital. Retrieved November 6, 2023, from gov.uk: https://www.gov.uk/government/publications/making-tax-digital/overview-of-making-tax-digital

HM Revenue & Customs. (2022, April 1). VAT Notice 700/22: Making Tax Digital for VAT. Retrieved November 6, 2023, from gov.uk: https://www.gov.uk/government/publications/vat-notice-70022-making-tax-digital-for-vat/vat-notice-70022-making-tax-digital-for-vat

HM Revenue & Customs and HM Treasury. (2020, July 21). Building a trusted, modern tax administration system. Retrieved November 6, 2023, from gov.uk: https://www.gov.uk/government/publications/tax-administration-strategy/building-a-trusted-modern-tax-administration-system