The direction is set. The question now is when, not if, the digital exchange of invoice information directly between buyers and suppliers – or e-invoicing – will become compulsory for all taxpayers in every European country, whether they are members of the European Union or not.
In the EU, the compulsory use of e-invoices must be in place by 2030 with no exception, as stipulated by the VAT in the Digital Age legislation, approved by the Council of the European Union in November 2024 (see previous AB coverage). But nothing is preventing member states getting ahead of the game and introducing compulsory e-invoicing rules earlier, at least for some taxpayers.
Ireland launched a consultation focused on a move to real-time digital reporting for VAT
Three EU countries (Italy, Greece and Romania) have already fully mandated the use of e-invoicing for business-to-business transactions. The pioneer was Italy back in 2019, with Greece and Romania making it compulsory in 2024.
Germany and Spain are expected to introduce similar rules this year; Poland and France are targeting 2026, and they seem determined to accomplish the mission by then.
The French government in fact has just rejected a proposal to delay the launch of e-invoicing and e-reporting for large and mid-sized businesses by a year.
Other EU members have not set a starting date yet for the mandatory issue of e-invoices (which is worth remembering will become a substantive condition for VAT recovery), but may announce their swift introduction before 2030.
Ireland falls into this category. At the end of 2023 it launched a public consultation on modernising the administration of VAT. Specifically, the consultation focused on a proposed move to real-time digital reporting for VAT, supported by electronic invoicing.
Compatibility concerns
The findings highlighted both support and concerns for the changes to come, in particular from small businesses ‘regarding the introduction and operation of new IT arrangements or systems’ and their ‘compatibility with their normal business systems’.
The introduction of e-invoicing could create administrative and cost issues
These concerns echo to a certain extent those expressed by ACCA in its response to the public consultation issued by the UK tax administrator HMRC on electronic invoicing for UK businesses. ACCA recommends for the UK ‘a phased implementation to allow capability and capacity to grow, and to learn lessons from those entities most equipped to undertake this at the outset’.
Furthermore, ACCA suggests ‘a cautious approach when considering the capacity HMRC would have to implement new developments such as e-invoicing while HMRC reforms and areas such as MTD [Making Tax Digital] are at the early stages of phased implementation’.
MTD clash
With the scope of the UK’s MTD scheme being expanded to income tax after its VAT roll-out, the simultaneous introduction of compulsory e-invoicing in the country could initially create administrative and cost issues, both for small British businesses and HMRC. In this context, the UK tax authorities and the government have a delicate balance to achieve.
The UK government says the new rules ‘could reduce invoicing and data errors’
On one hand, they should not ignore the financial and IT constraints that certain small and micro taxpayers may face in a fully digital tax world; on the other, they would want to close as much as possible the current yearly tax gap of almost £40bn. The latest findings highlight that 60% of this in 2022-23 was caused by small businesses, with genuine errors and ‘failure to take reasonable care’ among the main causes.
MTD and the introduction of e-invoices are meant to address these problems. In setting out plans for an ‘e-invoicing overhaul’, the UK government has stated that the introduction of new rules ‘could help businesses get their tax right first time, reduce invoicing and data errors, improve the accuracy of VAT returns, help close the tax gap, and save time and money’.
